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5 Tech Stocks With Enough Cash to Outlast the COVID-19 Crisis

By Leo Sun – May 4, 2020 at 12:45PM

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Apple and four other tech giants are still sitting on mountains of cash during the crisis.

The COVID-19 crisis has made it tough for companies with low cash reserves, negative cash flows, and high debt levels to survive. Meanwhile, companies that have plenty of cash and little debt should weather the storm and rebound after the crisis ends.

Today, I'll highlight five tech companies that have more than enough cash to withstand the COVID-19 slowdown and other future crises: Apple (AAPL -0.23%), Microsoft (MSFT -0.61%), Alphabet (GOOG 0.40%) (GOOGL 0.36%), Facebook (META 0.88%), and Amazon (AMZN -0.38%).

A cash-filled tree.

Image source: Getty Images.

How much cash are the five tech giants holding?

All five companies recently posted their quarterly earnings. Apple led the pack in cash, cash equivalents, and marketable securities, but its holdings grew at a much slower rate than those of the other four tech giants:

Company

Cash, Cash Equivalents, and Marketable Securities (Most Recent Quarter)

Growth (Year-Over-Year)

Apple

$192.8 billion

(14%)

Microsoft

$137.6 billion

5%

Alphabet

$117.2 billion

3%

Facebook

$60.3 billion

33%

Amazon

$49.3 billion

(10%)

Source: Company quarterly reports.

Apple's aggressive investments in its digital ecosystem, which include new services and acquisitions, reduced its cash position last quarter as sales of its iPhones, iPads, and Macs declined. But during the conference call, CFO Luca Maestri noted that Apple still had "an extraordinarily strong balance sheet, very deep access to capital markets, and unmatched free cash flow generation" with no liquidity issues throughout the crisis.

Microsoft's cash position also grew as the growth of its commercial cloud businesses offset the weaker growth of its Windows OEM, hardware, and gaming units throughout the crisis. Alphabet's Google and Facebook both grappled with slower ad spending as businesses shut down, but Facebook benefited from the strength of Instagram and fewer low-margin side bets than Google.

Amazon posted robust revenue growth last quarter, but higher costs related to COVID-19 (which could balloon from $600 million in the first quarter to over $4 billion in the second quarter) could throttle its cash flows throughout the rest of 2020.

Which company has the most manageable debt?

The five tech giants all have plenty of cash to cover their liabilities. However, Facebook has no short or long-term debt, and it can easily cover its remaining liabilities with its cash on hand -- which explains why it grew its cash position at a much faster rate than its peers.

That's also why the Federal Trade Commission's $5 billion fine against Facebook for mishandling user data last year was considered a slap on the wrist. Alphabet also maintained a low debt-to-equity ratio despite facing similar fines in the EU, while the other three companies are shouldering significantly more debt.

Company

Total Term Debt

Debt-to-Equity Ratio

Apple

$99.5 billion

3.1

Microsoft

$62.9 billion

1.5

Alphabet

$5.0 billion

0.4

Facebook

$0

0.3

Amazon

$24.8 billion

2.6

Source: Company quarterly reports.

Apple increased its debt-to-equity ratio with a $7 billion bond offering last year. But unlike struggling companies in other sectors, Apple didn't sell the bonds to raise cash -- it merely took advantage of historically low rates to boost its liquidity. It then spent a large portion of that cash on buybacks, which reduced its number of outstanding shares and temporarily inflated its debt-to-equity ratio.

Instead, investors should pay closer attention to Microsoft and Amazon's debt levels, since both companies are plowing more money into their growing cloud ecosystems. As the battle escalates between Microsoft's Azure and Amazon Web Services (AWS), the two largest players in the cloud infrastructure market, both companies could resort to loss-leading strategies to grow their market shares. Tough competition from Walmart and Target could also force Amazon to ramp up its e-commerce investments.

The key takeaways

These five tech companies won't run out of cash like battered companies in the retail, oil, and travel sectors. Instead, they'll keep plowing their cash into new businesses and acquiring smaller companies to expand their ecosystems. Apple and Microsoft will also likely raise their dividends.

Those moves will strengthen the companies and make them more resilient to future market meltdowns. The tech sector was already better insulated from the COVID-19 crisis than many other sectors, but cash-rich companies like Apple, Microsoft, Alphabet, Facebook, and Amazon could truly shine throughout the crisis.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon, Apple, and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$146.07 (-0.23%) $0.33
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$101.80 (0.36%) $0.37
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$247.69 (-0.61%) $-1.51
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$120.50 (-0.38%) $0.46
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$140.20 (0.88%) $1.22
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$102.63 (0.40%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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