The largest 10 U.S. companies by market capitalization (number of shares, multiplied by price per share) currently represent about 30 per cent of the value of the entire U.S. publicly traded universe, and the U.S represents about 60 of the world market cap. Therefore these 10 companies represent about 18 per cent of the entire world’s publicly traded value. Eight of the 10 companies are technology.
The list is: Apple, Microsoft, Nvidia, Alphabet (Google), Amazon, Meta Platforms (Facebook), Berkshire Hathaway, Eli Lilly (on the recent strength of weight loss drugs), Broadcom and Tesla. The only two non-U.S. companies in this league are Saudi Aramco with 11 per cent of world oil production and Taiwan Semiconductors with 53 per cent of the world’s chips.
These massive U.S. tech companies retreated in the 2022 bear market but came back with a vengeance in 2023 and 2024, for the most part eclipsing their 2021 highs. The S&P 500 was up 14.5 per cent in the first half of 2024, with Nvidia, Microsoft and Alphabet representing half the value of total market gains. Of the top 10, only Tesla, my previous poster child for speculative excess, was down.
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For the past decade, if an investor didn’t own a substantial amount of these top 10 companies, it would have been difficult to match market performance. Our personal investment in them is very modest, with limited amounts of Microsoft, Alphabet, Amazon, Meta and Berkshire, representing less than five per cent of our total portfolios.
Did I miss the boat? Yes, I certainly did on these, because I am a little too value-oriented. However, overall, our portfolios have held up well compared to market benchmarks, which I will expand on in the next issue.
The remainder of this article references a recent Bridgewater Associates report titled, “The life cycle of market champions.” While the current level of market concentration is unusually high, market dominance by a small number of companies or sectors is not. The early 1900s was dominated by the railroads; then, by mid-century, autos, oil and chemicals dominated; then came telecom and the original tech company, IBM, while the 2000s have been dominated by many of the current tech behemoths.
The report shared the 10 largest companies at the start of each decade since 1900 and interestingly, Exxon Mobil has been on the list every decade except the current one. In fact, the 1980 list had six oil companies, while today’s list has none. The names change each decade as former giants succumb to new market forces. Many stayed for several decades, such as Exxon; some fell off the list but remained relevant and continued to perform, such as Walmart. Some, such as Kodak and GE, are shadows of their former selves, while others, such as Sears, failed entirely.
None of the companies on the current list were on the list in 1990, and only Microsoft was on the list in 2000. Only three were on the list as recently as 2010. That means seven dominant companies in 2010 fell off the list over the past 14 years. What will be the fate of the current list?
As Yogi Berra quipped, “It’s really hard to make predictions, especially about the future.” It is difficult to predict which companies stay dominant. However, one thing is certain: the list in 2030 will be different, and the list in 2040 will be different again.
Multiple expansion
While earnings have been robust at many of these companies, much of the gain over the past few years has been through increasing valuations, commonly referred to as multiple expansion. As an example, in 2016 Apple was trading at about $25 and had a price/earnings (P/E) ratio of about 12. Today it is trading at $220 with a P/E of 33. While earnings have tripled, its share price is up nine times. It is now a much larger company, making it more difficult to maintain historical earnings trajectory. The main reason I passed on Apple is the technology has evolved quickly. Twenty-five years ago, we all had Nokias or Motorolas, and 15 years ago we all had BlackBerrys, and now we all have iPhones. What will we be carrying 10 years from now?
Over the 120-year time frame, the top 10 companies averaged 20 per cent of the total U.S. market cap, versus a record-high 30 per cent today. Historically, 20 years after a cohort’s peak, it had fallen to 10 per cent of the total market cap, and 60 years later it had fallen to five per cent. That doesn’t mean they all performed poorly — just that in aggregate, the market performed better than the peak cohort, and other companies displaced some, if not all, of them.
Will history repeat itself? While many of these companies look insurmountable today, if you go back 30 years, so did IBM and GE.
(And if you’re curious, the ones I think will stay on the list the longest are Microsoft, Amazon, Alphabet and Berkshire — and I expect Exxon to rejoin.)
