Collectively, Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Alphabet Inc (GOOGL, GOOG) have a staggering $391.4 billion in cash on their balance sheets. If the latest market rumors have any truth to them, the three companies each have some big plans for that cash in the near future.
Apple (AAPL)
With $215.7 billion in cash on its books at last count, AAPL has more than twice as much cash as any other public U.S. company. Incredibly, AAPL now single-handedly accounts for 12.8% of total U.S. corporate cash!
If the latest reports on AAPL are true, the company may soon need a big chunk of that cash. In the face of potential iPhone market saturation, AAPL may choose to look to the M&A market for its next long-term growth source.
According to the Financial Times, AAPL senior vice president Eddie Cue brought up the possibility of AAPL buying Time Warner Inc (TWX) late in 2015 during a meeting with TWX head of corporate strategy Olaf Olafsson.
Although the discussion reportedly didn’t make it beyond the preliminary stages, AAPL’s interest in TWX (and its $58 billion market cap) sheds some major light on AAPL’s strategy to potentially acquire a large media company.
Although it seems like an AAPL/TWX may no longer be on the table, the Financial Times speculated that Walt Disney Co (DIS) could be another good fit for AAPL. DIS’s $157 billion market cap would be too expensive for almost any other company, but AAPL can pull the trigger at that price if it chooses.
Others have speculated that Netflix, Inc. (NFLX) would be a better fit for AAPL at only $40 billion. Either way, AAPL seems internally interested in expanding its media presence in the near future.
Microsoft (MSFT)
With $102.6 billion in cash on its books, MSFT is currently the second biggest corporate cash hoarder in the U.S. What does the company plan to do with all that cash?
With the PC software business dying a slow death, MSFT has already invested $15 billion in recent years going all in on its Azure cloud services business. Sure, Azure is currently second-fiddle to Amazon.com, Inc. (AMZN)’s AWS, but the massive cloud services market has plenty of business to go around. Azure revenue is growing at nearly a 100% annual rate in recent quarters, an indication that MSFT’s big cloud investment seems to be paying off.
In addition to further investments in Azure, MSFT is one of the major potential buyers in what could be an imminent cyclical surge in software M&A. According to Pacific Crest, the recent sell-off in software stocks has set the table for the biggest software M&A boom since 2011.
Pacific Crest recently named MSFT and its $102 billion in cash as one of the biggest potential buyers of the coming cycle.
Alphabet (GOOGL)
Everyone knows that GOOGL is one of the leading tech names that has been investing heavily in driverless automobile research. While new-age auto rival Tesla Motors Inc (TSLA) will have to rely on debt to fund the majority of its massive projected production ramp, GOOGL has plenty of cash on hand to stake its claim in the next-generation of the auto market.
With $63.1 billion in cash, GOOGL was also named by Pacific Crest as another likely software M&A buyer.
For MSFT and GOOGL, Pacific Crest’s top buyout targets won’t come cheap. The firm named Tableau Software Inc (DATA) ($4.0 billion market cap), Shopify Inc (SHOP) ($2.3 billion market cap) and Zendesk Inc (ZEN) ($2.4 billion market cap) as three of the most likely software buyout targets.
Disclosure: As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.
