Does the race to $1trn matter? And what are the likely characteristics of tomorrow’s winners?
Apple, Alphabet, Microsoft or Amazon? Which one will cross the line first in the race to be the world’s first $1trn company? Perhaps focusing on market cap alone is to a miss a more important point about the nature of today’s mega caps.
Apple has built up a lead versus competitors (Apple’s current market cap (as of 27 July) is $955 bn, while Alphabet and Amazon are at $887 bn and $877 bn respectively) but other firms are in the mix. Microsoft ($842 bn), for example, with its success in the cloud computing space, or Tencent ($445 bn), the Chinese internet giant, are also recognised global behemoths.
However, if one compares the present day to history, it is clear that we are in an era where huge companies are not unusual, with no one standout company that dwarfs all others.
Just over 50 years ago, in the late 1960s, the picture was very different. In 1967, for example, the largest company in the US market was IBM – still a corporate bellwether today. But it was over five times the size of the tenth largest company – Gulf Oil – which was worth around $58bn. Apple, Alphabet and Amazon are undoubtedly behemoths but they do not dwarf the likes of JP Morgan Chase and Johnson & Johnson, which also appear in today’s US (and global) top ten.
Regulators may fret about the influence of megacaps like Apple and Amazon, but they are not unusual in terms of their size, which can only be a good thing for investors as it means a much less lopsided equity market. If we go back to 1917, the largest US company – US Steel – was ten times larger than the tenth largest (US Rubber).
It is also noteworthy that 1967’s US top 10 contained two formerly household names –- Eastman Kodak and Polaroid — who saw their businesses dismantled by the advent of new (digital) technology. After decades of dominance, both were too slow to adapt, and paid a heavy price.
Today’s megacaps have been successful because they embedded themselves in our lives to the point where many of us, if pressed, might struggle to function without our iPhone or Android device or a Google map. Phones are not just phones – they are intelligent devices – and they are about to become more intelligent due to the power of AI.
To give just one insight into the power of AI, Google recently showcased updates to its voice assistant, which will be able to make calls on the user’s behalf (say to the local hair dresser) and make appointments directly. With English mannerisms such as ‘mmhmm’ built in, it will become much harder to distinguish the digital ‘you’ from the actual ‘you’.
Persistency is hard to value, but the truth is that the more a company can become ingrained in the way we live our lives, the harder it is to usurp, and thus the more it tends to be worth because of the very high level of certainty that it can provide to investors when it comes to metrics such as future cash flows.
As history has shown, few companies can embed themselves in such a way for the long term, and the future winners in 50 years’ time may look very different to those we have now. But what is clear is that businesses are using AI to consolidate what are already strong positions within their existing markets, and these are unlikely to be overtaken any time soon.
Which company gets to $1 trillion first is immaterial. However, as far as the future and likely corporate persistence is concerned, the role of AI is anything but.