Understanding S&P 500 Gross Margins and the Impact on Tech Companies

The average gross margin of the S&P 500 is about 43% over the last 25 years, but dropped to 30% in 2000 and 23% in 2003 due to the web 1.0 bubble burst. High gross margin companies are rewarded for growth but tend to struggle in generating profitability and consistency. Technology is no longer a definable sector, and many companies are tech-enabled versions of traditional sectors like energy, consumer staples, and real estate. The prevailing gross margin and profitability of companies have not changed much, and outliers to these trends may go through a process of transformation. Traditional companies are now getting rebuilt as technology companies, but may not have as big of an advantage as the incumbents in adopting technology.