TAKE a moment to admire—and fear—the ascent of America’s big-five tech firms. Apple, Alphabet, Microsoft, Amazon and Facebook have recently become the five most valuable listed companies in the world, in that order. With a total market value of $2.9trn, they are worth more than any five firms in history.

Elevated tech valuations used to be a sign of hysteria. Today’s investors believe they are making an ice-cold judgment that these firms are the dominant oligopolies of the 21st century and will extract a vast, rising, flow of profits. There is one gnawing doubt, however: the formidable five’s cash-rich balance-sheets, which are built as if they expect a crisis, not to dominate the world.

It is easy to see why investors are keen. Billions of users are tied into these firms’ social-media networks, digital assistants, operating systems and cloud-computing platforms. The five firms are squeezing traditional competitors such as IBM and Macy’s. Together they make $100bn of profits. Analysts forecast this will rise to $170bn by 2020. The rebels of Silicon Valley have evolved into slick moneymaking machines with high market shares. For investors it just doesn’t get any better.

Old-economy oligopolists, such as cable, telecoms and beer companies, are confident about their ability to extract reliable rents from customers, so they finance themselves largely with debt, which is cheap but inflexible, and return most of the cash they make to shareholders. Yet, oddly, the biggest tech firms have the opposite approach. Together they have $330bn of net cash (cash less debt), a ratio of twice their gross cashflow.

The pile far exceeds the cash buffers that tech and pharmaceutical firms traditionally carry to compensate for their lack of physical assets that debt can be secured against. For example a selection of five cash hoarders from an early generation of tech giants—Cisco, Intel, Oracle, Qualcomm and Texas Instruments—together have had an average ratio of only 1.3 times since 1996.

The money mountain will get much bigger as profits soar. The five firms have policies for returning some cash to shareholders. For example, Alphabet and Facebook will not pay dividends for the “foreseeable future” but have small buy-back programmes, albeit with no deadlines. Apple pays a meaty dividend and has a budget for repurchasing shares until 2019. Factoring in these programmes, and analysts’ profit forecasts, their total net cash will reach $680bn by 2020, or three times gross cashflow. Even Amazon, which has a relatively small pile now, will reach $50bn.

One reason for the cash build up is tax: 80% of the five firms’ gross cash is held abroad, allowing them to defer the levy American firms pay when repatriating profits. The bill for bringing half the cash home might be about $50bn. That is not to be sniffed at, but being clever about tax has become an excuse for firms to obfuscate and dither about their plans for their balance sheets.

The cash cushion is far larger than is needed to absorb shocks, such as a financial crash or a hacking attack. Schumpeter has devised a tech “stress test”. It assumes that staff are paid in cash not shares, which might happen after a stockmarket collapse, and that firms pay all their contingent tax liabilities (including all repatriation levies) as well as regulatory and litigation claims. It also includes a year of contractual payments—for instance Apple has to pay $29bn to component suppliers. Including all of these costs, the five firms would still have $380bn of net cash by 2020.

Nor could fresh investments soak up all the cash. The five tech firms together put $100bn last year into research and development and capital spending, three times more than half a decade ago. A torrent of money is already flowing into data centres, software, new headquarters and “moon shots” such as driverless cars and immortality drugs. In order for the firms to spend all of the cashflow they are on track to retain, annual investment would need to rise to almost $300bn by 2020.

That is over twice what the global venture-capital industry spends each year. It is 51 times the annual cash burned up by Netflix, Uber and Tesla, three firms famous for being cash hungry. And it is 37 times the average annual amount of cash the five firms have in total spent on acquisitions to gain new technologies and products, such as Facebook’s $19bn purchase of WhatsApp, a messaging service in 2014, or Google’s $3.1bn acquisition of DoubleClick, an advertising firm, in 2007.

Might these firms hoard cash just because they are run by megalomaniacs who are too rich and odd to obey any rules? That seems glib and out of date. Apple and Microsoft are no longer controlled by their founders. Those behind Alphabet were pragmatic enough in 2015 to appoint Ruth Porat, the former finance boss of Morgan Stanley, as its chief financial officer, to instil more discipline. Jeff Bezos’s interest is arguably for Amazon to pay a dividend—in the absence of one he is selling $1bn of his shares every year to raise cash to finance his space-rocket firm.

Valleys of death

Maybe if the tax code is reformed the great cash build up will end. The most mature firms, Apple and Microsoft, would make a large one-off return of cash to shareholders. Amazon, Alphabet and Facebook would adopt sensible frameworks for returning cash to shareholders as their profits soar.

But perhaps these firms love their giant insurance policy. Imperious on the outside, inside they may worry about obsolescence and regulation. Anti-trust authorities are getting hostile. Only five years ago Facebook and Google were struggling with the shift from desktops to devices. Both depend on advertising for over 85% of sales. Apple’s health depends on its latest iPhone, Amazon has thin margins and Microsoft’s profits have yet to rise.

If earnings do soar as forecast, the big-five tech firms could be plotting giant acquisitions of media, car or hardware firms, to diversify away from their core business. But they may simply be uneasy that profits will not rise as high as Wall Street now expects. Either way, the $330bn safety blanket that lets Silicon Valley sleep at night should lead investors to keep one eye open.