Technology
How Do Big Tech Giants Make Their Billions?
How Do Big Tech Giants Make Their Billions?
In 2021, the Big Five tech giants—Apple, Amazon, Google (Alphabet), Meta, and Microsoft—generated a combined $1.4 trillion in revenue.
What are the sources of this revenue, and how does it breakdown?
Below, we’ll dive into the main ways that these big tech giants generate revenue, and take a look at how much their revenues have increased in recent years.
Breaking Down Big Tech’s Revenue Streams
As we’ve mentioned in previous editions of this graphic, there are two main ways that big tech companies generate revenue:
- They either sell you a product
- Or sell you as the product to advertisers
Apple, Microsoft, and Amazon fall into the first category—like most traditional businesses, these companies offer customers a physical (or digital) product in exchange for money. More than half of Apple’s revenue comes from iPhone sales, Azure cloud services generate almost a third of Microsoft’s total, and Amazon’s online stores account for nearly 50% of the company’s revenue.
On the other hand, Meta and Alphabet do things a bit differently. Rather than selling an actual product, these two tech giants make most of their money by selling their audience’s attention. Nearly 98% of Meta’s revenue comes from Facebook ads, and 81% of Google’s revenue comes from advertising on various Google products.
However, despite their varying ways of generating sales, these companies all have one thing in common: revenues have soared in recent years.
The Pandemic Has Sped Up Growth
Amidst rising unemployment and pandemic-induced chaos, the Big Five still managed to see a significant revenue uptick.
In 2019 (pre-pandemic), big tech’s combined revenue grew by 12%. The following year, throughout the onset of the global pandemic and the various economic challenges that came with it, big tech still increased its combined revenue by 19%.
And in the 2021 fiscal year, big tech saw a 27% growth in combined revenue, year-over-year.
| Company | Revenue (FY 2020) | Revenue (FY 2021) | Growth (YoY) |
|---|---|---|---|
| Apple | $274.5 billion | $365.8 billion | 33% |
| Amazon | $386.1 billion | $469.8 billion | 22% |
| Alphabet | $182.5 billion | $257.6 billion | 41% |
| Microsoft | $143.1 billion | $168.1 billion | 17% |
| Meta | $86.0 billion | $117.9 billion | 37% |
| Combined | $1.1 trillion | $1.4 trillion | 27% |
How did these companies continue to thrive throughout economic turmoil and global chaos? It was made possible because the societal changes triggered by COVID-19 ended up driving demand for big tech’s products and services.
For example, lockdown restrictions forced people to shop online, causing e-commerce sales to escalate. Demand for laptops and cloud-based services grew as offices shut down and companies pivoted to fully remote workspaces.
Is Growth Here to Stay?
These days, COVID-19 restrictions have eased in most countries, and the world has slowly returned to normalcy.
But that doesn’t mean growth for big tech will stop. In fact, the pandemic-induced changes to our work and shopping habits will likely stick around, meaning the increased demand for big tech’s offerings could be here to stay.
Two-thirds of employees from a global survey said their company would likely make remote work a permanent option. And global e-commerce sales are expected to grow steadily over the next few years to reach $7 trillion by 2025.
Technology
Nvidia Joins the Trillion Dollar Club
America’s biggest chipmaker Nvidia has joined the trillion dollar club as advancements in AI move at lightning speed.
Nvidia Joins the Trillion Dollar Club
Chipmaker Nvidia is now worth nearly as much as Amazon.
America’s largest semiconductor company has vaulted past the $1 trillion market capitalization mark, a milestone reached by just a handful of companies including Apple, Amazon, and Microsoft. While many of these are household names, Nvidia has only recently gained widespread attention amid the AI boom.
The above graphic compares Nvidia to the seven companies that have reached the trillion dollar club.
Riding the AI Wave
Nvidia’s market cap has more than doubled in 2023 to over $1 trillion.
The company designs semiconductor chips that are made of silicon slices that contain specific patterns. Just like you flip an electrical switch by turning on a light at home, these chips have billions of switches that process complex information simultaneously.
Today, they are integral to many AI functions—from OpenAI’s ChatGPT to image generation. Here’s how Nvidia stands up against companies that have achieved the trillion dollar milestone:
| Joined Club | Market Cap in trillions | Peak Market Cap in trillions |
|
|---|---|---|---|
| Apple | Aug 2018 | $2.78 | $2.94 |
| Microsoft | Apr 2019 | $2.47 | $2.58 |
| Aramco | Dec 2019 | $2.06 | $2.45 |
| Alphabet | Jul 2020 | $1.58 | $1.98 |
| Amazon | Apr 2020 | $1.25 | $1.88 |
| Meta | Jun 2021 | $0.68 | $1.07 |
| Tesla | Oct 2021 | $0.63 | $1.23 |
| Nvidia | May 2023 | $1.02 | $1.02 |
Note: Market caps as of May 30th, 2023
After posting record sales, the company added $184 billion to its market value in one day. Only two other companies have exceeded this number: Amazon ($191 billion), and Apple ($191 billion).
As Nvidia’s market cap reaches new heights, many are wondering if its explosive growth will continue—or if the AI craze is merely temporary. There are cases to be made on both sides.
Bull Case Scenario
Big tech companies are racing to develop capabilities like OpenAI. These types of generative AI require vastly higher amounts of computing power, especially as they become more sophisticated.
Many tech giants, including Google and Microsoft use Nvidia chips to power their AI operations. Consider how Google plans to use generative AI in six products in the future. Each of these have over 2 billion users.
Nvidia has also launched new products days since its stratospheric rise, spanning from robotics to gaming. Leading the way is the A100, a powerful graphics processing unit (GPU) well-suited for machine learning. Additionally, it announced a new supercomputer platform that Google, Microsoft, and Meta are first in line for. Overall, 65,000 companies globally use the company’s chips for a wide range of functions.
Bear Case Scenario
While extreme investor optimism has launched Nvidia to record highs, how do some of its fundamental valuations stack up to other giants?
As the table below shows, its price to earnings (P/E) ratio is second-only to Amazon, at 214.4. This shows how much a shareholder pays compared to the earnings of a company. Here, the company’s share price is over 200 times its earnings on a per share basis.
| P/E Ratio | Net Profit Margin (Annual) | |
|---|---|---|
| Apple | 30.2 | 25.3% |
| Microsoft | 36.1 | 36.7% |
| Aramco | 13.5 | 26.4% |
| Alphabet | 28.2 | 21.2% |
| Amazon | 294.2 | -0.5% |
| Meta | 33.9 | 19.9% |
| Tesla | 59.0 | 15.4% |
| Nvidia | 214.4 | 16.19% |
Consider how this looks for revenue of Nvidia compared to other big tech names:
$NVDA $963 billion market cap, 38x Revenue
$MSFT $2.5 trillion market cap, 12x Revenue$TSLA $612 billion market cap, 7.8x Revenue$AAPL $2.75 trillion market cap, 7.3x Revenue$GOOG $1.6 trillion market cap, 6.1x Revenue$META $672 billion market cap, 6x Revenue pic.twitter.com/VgkKAfiydx— Martin Pelletier (@MPelletierCIO) May 29, 2023
For some, Nvidia’s valuation seems unrealistic even in spite of the prospects of AI. While Nvidia has $11 billion in projected revenue for the next quarter, it would still mean significantly higher multiples than its big tech peers. This suggests the company is overvalued at current prices.
Nvidia’s Growth: Will it Last?
This is not the first time Nvidia’s market cap has rocketed up.
During the crypto rally of 2021, its share price skyrocketed over 100% as demand for its GPUs increased. These specialist chips help mine cryptocurrency, and a jump in demand led to a shortage of chips at the time.
As cryptocurrencies lost their lustre, Nvidia’s share price sank over 46% the following year.
By comparison, AI advancements could have more transformative power. Big tech is rushing to partner with Nvidia, potentially reshaping everything from search to advertising.
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