By Dan Gallagher 

There are some things even half a trillion dollars can't buy.

One of those is freedom from Washington politics. Tax overhaul promises from the Trump administration had lit up tech investors eyeing a rather large purse. The 10 largest tech companies by market cap are now sitting on a total of $545 billion in offshore cash -- money seemingly just waiting for U.S. politicians to agree on a plan that would allow those funds to be repatriated for something significantly less than the current 35% tax rate.

The dim prospects for such a deal now had a noticeable effect in the selloff last week, which handed the Nasdaq Composite its worst day in nearly a year. Apple was among the hardest hit, falling 3.4% that day. It's no coincidence that Apple has $230 billion sitting offshore -- by far the largest overseas stockpile in tech.

That should at least curb some of the speculation about a deal-making boom that could be fueled with that money. Such chatter tends to inflate valuations of smaller public and private companies banking on a buyout. It also feeds rumors of fantasy matchups, like Apple buying Netflix or Disney.

But cash stranded offshore still has some uses at home. In the case of Apple, it has backed a growing debt load that finances the company's dividend and share buybacks. Microsoft, Oracle and Cisco Systems have also made use of debt backed by their overseas bank accounts. For those four companies, offshore cash accounts for 28% of their combined market cap.

Cash also helps moderate high valuations of big tech companies. Apple's current multiple of nearly 16 times forward earnings is a five-year high, but that drops to 12.7 times excluding the company's net cash. Google parent Alphabet's and Microsoft's forward earnings multiples get discounted by 14% and 9%, respectively, excluding their net cash.

It's also worth remembering that bulging bank accounts aren't the only good reason to buy into Big Tech right now. Google, Microsoft, Amazon.com and Facebook in particular have capitalized effectively on their scale and continue to widen the lead over smaller competitors. Apple appears to be on the cusp of returning its iPhone business to growth and further expanding its services offerings.

And while repatriated cash could boost deal making, large-scale M&A hasn't been a major factor in Big Tech's resurgence. Microsoft is still in the early days of building on its $26 billion purchase of LinkedIn last year, and that deal isn't part of the company's growing Commercial Cloud operations. Google and Amazon have largely been avoiding big deals of late.

That doesn't mean an actual repatriation tax break won't be welcome. But the biggest tech companies right now are in the advantageous position of not having to bank on it.

Write to Dan Gallagher at dan.gallagher@wsj.com

 

(END) Dow Jones Newswires

May 21, 2017 11:14 ET (15:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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