Why banking troubles were good news for Apple stock and the rest of Big Tech

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SVB Finance

The company’s woes may have sparked the latest round of stock market troubles, but despite the lender’s ties to Silicon Valley, the tech sector was remarkably resilient during the sell-off.

That’s obvious how you cut it. For the past five trading days through Thursday’s close, the S&P 500 was essentially flat, during the

Nasdaq Composite

has increased by more than 4%. The tech stock index is up nearly 16% year-to-date, helped by its January rally, compared to just over 3% for the

S&P500
.

Exchange-traded sector funds tell the same story. In the past week, the

Technology Select Sector SPDR Fund

(Ticker: XLK) is up 4.1%, up about 17% for the year.

The largest tech companies have performed similarly. Shares of the flagship

Apple

(AAPL) are up 3.8% in the last five days, giving the stock a 25% rise in 2023 so far;

Microsoft

(MSFT) is up 9.9% and 15.3% during those periods. Likewise Google parent

alphabet

(GOOGL) stock is up 8.8% this week and 12.6% this year.

The tech sector’s gains provide a contrast to the battered financial industry. For example, the Financial Select Sector SPDR Fund (XLF) is down 3.5% in the past five days and 6.7% year-to-date. Not surprisingly, the

SPDR S&P Bank ETF

(KBE) was hit even harder, plunging 8.5% over the past five days. Prior to this week, it was in the black in 2023; now it’s down nearly 16% for the year.

There are a few reasons tech stocks have thrived despite the demise of one of the industry’s most popular lenders. Tech still has momentum from earlier this year and is still working on its sharp declines from 2022.

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Perhaps most importantly, parts of Big Tech can seem quite defensive — especially when compared to shakier regional banks or capital-hungry startups still chasing profitability. That might sound counterintuitive given the sector’s reputation for growth, but if you’re looking for the safety of cash, Big Tech has it in abundance.

Apple is famous for its fortress-like balance sheet, which is backed by such a large cash stash that it’s actually been called problematic (a problem we’d all like to have). At the end of fiscal 2022 in September, free cash flow was up almost 20% year over year to $111.44 billion.

When Microsoft’s fiscal year ended at the end of June, the company had $65 billion in free cash flow on its books. Alphabet ended 2022 with free cash flow of $60 billion, about double what it was at the end of 2019.

Certainly, these companies aren’t immune to the broader economic environment: In a recession, fewer people might be able to upgrade their iPhones or invest in new tech devices or services. Still, few analysts question the long-term dominance and resilience of these companies. The cash of big tech companies also means these companies are not dependent on lenders like Silicon Valley Bank or venture capitalists — unlike startups — nor do they need to raise capital when interest rates are still high.

For investors looking for a pot of gold this St. Patrick’s Day, Big Tech might be the place to look.

Write to Teresa Rivas at teresa.rivas@barrons.com