August 13, 2018
Last week marked a new milestone in the history of the stock market. Apple (AAPL) on Thursday became the first publicly traded company to reach a valuation of more than $1 trillion. Apple is followed not far behind by other globally recognizable names such as Amazon, Alphabet (the parent company of Google), Microsoft, Facebook, and two relative newcomers from China, Tencent and Alibaba. The last on this list, Alibaba, while being the 7th largest publicly traded company in the world, trails Apple’s market cap by slightly more than half. The rise in these mega-companies is significant not only because of their sheer value, but also because of the broader impact that such large companies can have on the global economy.
There could be both potential upsides and downsides with companies becoming as large as these. On the positive side, larger companies tend to have more pricing power and higher efficiencies of scale. These savings can sometimes be passed on to the consumer leading to lower overall prices. If these trends are strong enough it means that more people throughout the world could have access to new technologies and services than previously thought possible.
On the other side of this argument, however, stands the employee. As these companies continue to grow they gain more pricing power over the wages paid to their workers. There is new research being conducted to ensure that mega-companies are not contributing to the limited wage growth we have seen over the last decade for lower level employees, as well as the increasing wealth inequality gap throughout the world. The top 30 companies in the US collectively capture over half of the total profits of their cohort. In 1975 you had to add up the earnings of the top 109 companies to get to the same figure.
One more issue to consider here is perspective. While Apple is the first public company to top out at over a trillion dollars, it is by no means the largest company in history when considering inflation. By best estimates it is in fact the 7th largest, coming in right behind Standard Oil in 1900. And the largest company ever? That reward must go to the monopolistic Dutch East India Company in 1637 at a whopping inflation adjusted valuation of $7.9 trillion. Apple still has a long way to go to compete with that.
One interesting trait that the top 7 largest companies have in common with the other largest companies in history is that they were and are the growth stocks of their era. Today’s list started as what we commonly consider a “tech” stock (high growth, limited earnings, and no dividends), but have since merged and migrated to be more like a consumer discretionary. In the past the largest were trading companies at the outset of true global trade links and oil and gas companies twice: both at the start of the motor industry and at the peak of oil prices in the last decade. One more thing that all these companies have in common? None held their value through the test of time and inflation.