Apple and big tech will drive total 2017 corporate cash stockpile up to $1.9 trillion

Led by Apple, technology companies continue to boast strong cash flow generation, leaving a select five companies atop a corporate cash heap that will only grow more this year, Moody’s Investors Service data out Monday showed.

U.S. non-financial companies’ cash and liquid investments will rise about 5% to $1.9 trillion at the end of 2017, Moody’s said in its report.

Cash, including large and growing offshore holdings, remain important to investors hooked on attractive dividends and robust, routine share buybacks. The fate of multiple versions of Republican-led tax reform, including the treatment of cash stashes in foreign shelters, remains in close focus for tech companies and their shareholders.

The top five cash holders — Apple AAPL, -0.11% Microsoft MSFT, +0.00% Google parent Alphabet GOOGL, -0.03% Cisco Systems CSCO, +1.53% and Oracle ORCL, +0.34%   — are on track to hold a cumulative $679 billion in cash, or 35% of the total non-financial corporate cash balance at the end of calendar 2017. Their share is up 16% from $585 billion, or 32% of the total, in 2016.

The top five’s contribution to overall cash accumulation is expanding, and their health could influence anything from corporate interest rates to federal revenue collection.

“We project the technology sector’s share of cash to rise to nearly 50% of total non-financial corporate cash holdings in 2017, up from 47% last year and 31% in 2007,” said Richard Lane, Moody’s senior vice president.

Read: Fund manager looks beyond ‘FAANG’ stocks and finds even bigger winners for 2018

Moody’s projects that Apple alone will exceed $285 billion in cash holdings by the end of calendar 2017, representing nearly 15% of total non-financial corporate cash, up from $246 billion, or 13.4% of the total, last year.

Cash-flush Apple crushed analyst expectations with a fiscal fourth-quarter earnings report out in early November. It delivered a billion-dollar beat on net profit, and executives used the opportunity to soften fears about iPhone X production delays by predicting that the current quarter will have record revenue. Apple, which is the largest company on the U.S. stock market, recently cracked a $900 billion market cap before pulling slightly off that mark. Shares are up nearly 47% year to date, while the Dow Jones Industrial Average DJIA, +0.31%  has gained 18.7% and the S&P SPX, +0.13%  has gained 15.4%.

Commentary: Here’s how Apple gets to a $2 trillion market value

As a Senate and House version of tax reform make their way through Congress, attention remains fixed on the treatment of offshore cash held by U.S. multinationals.

According to the Moody’s data, total offshore cash held by U.S. non-financial corporates will reach about $1.4 trillion, or 72% of total cash, in 2017, up from Moody’s estimate of $1.3 trillion, or 70% of the total, the previous year.

The top five cash holders’ overseas cash will likely reach about $594 billion, or 88% of their total cash, at the end of calendar 2017, up from $512 billion, or 88% in 2016.

Rather than take a 35% tax hit to repatriate cash from overseas, Apple and other tech powerhouses have issued debt at historically low interest rates to fund dividends, buybacks and other domestic spending. Apple, for instance, had about $100 billion in long-term debt on its books as of its fiscal fourth-quarter earnings report.

With $252.3 billion in cash held outside of the U.S. (almost all of its reported $268.9 billion in total cash at the end of fourth quarter), Apple stands to be among the biggest beneficiaries of the House version of tax overhaul, which proposes cutting the one-time tax rate on overseas cash to 12% from 35% upon repatriation.

In addition, Republican proposals seek to move the U.S. to a territorial tax system under which foreign profits would no longer be subject to U.S. tax in most cases.

Read: Opinion: Republican tax plan will encourage more corporate offshore tax avoidance

Speculation bubbles around whether Apple would turn cash into acquisitions or return it to shareholders, or both. Apple management during their early November conference call emphasized a commitment to the company’s $300 billion capital return plan, of which it has paid out $234 billion in buybacks and dividends.

The company issued $7 billion of bonds in early November in its latest deal to finance shareholder rewards.

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