Eight of the world’s 10 biggest companies as measured by market capitalization are American. Market capitalization is the total value of a company's entire shares of stock. While these companies have their roots in the U.S. and are the embodiment of “all-American” qualities such as innovation and industry, their reach is worldwide and their marketplace global. (see "Apple? Google? Tesla? Which will be the first to reach a $1-trillion market cap?").
According to PriceWaterhouseCoopers, as of March 31, 2018, only one of these top 10 global companies is not categorized as a mega cap. Mega cap refers to companies with a market capitalization above $300 billion.
Half of the top 10 ranking are technology companies, while three deal in financials and the other two are in consumer services.
The disproportionate number of American companies in the ranks of global titans can be attributed to a combination of favorable factors in recent years. But such dominance also holds a disconcerting lesson, going by events over the past three decades. Before we delve into these points, here are the world’s top 10 companies (the markets caps are as of Oct. 19, 2018 and are based on Google Finance):
Apple (AAPL) – Market cap $1 trillion. The world’s most valuable company achieved a milestone on Aug. 2, 2018 by surpassing the $1 trillion mark in market capitalization. It continues to reap billions by selling millions of iPhones, iPads and other coveted gadgets. At one point the computer-maker nearly faced bankruptcy, but has evolved into the most publicly-traded company in its 21-year history.
Alphabet (GOOGL) – Market cap $765.35 billion. Holding company Alphabet was created in August 2015 to separate Google’s main businesses such as search and advertising from a host of new projects that are riskier long shots. Those include such ventures as Verily Life Sciences (whose projects include a glucose-sensing contact lens), Calico (focused on biotech), driverless cars and secretive lab Google X, plus investing units CapitalG and GV. Google has grown significantly in just over a decade as a public entity, and if one or more of its long shots turn into home runs, the company may overtake Apple as No.1. In the first quarter of 2018, Google reported $3.1 billion in quarterly revenue, which surpassed Wall Street estimates by roughly $870 million.
Microsoft (MSFT) – Market cap $833.23 billion. Microsoft was the world’s biggest company at the turn of the millennium and continues to be a steady presence in the ranks of the giants. The software company continues to make a successful transition away from its traditional products that are purchased and installed on clients' computers, toward cloud-based products and services such as its Azure cloud services and the Office 365, as well as newer products on the horizon, including with a newer version of Windows 12 as well as Office 2019.
Amazon (AMZN) – Market cap $860.39 billion. Amazon's shares reached $2,000 per share in August 2018 for the first time. The stock has had a meteoric rise in the current bull market, having surged more than six-fold since 2009. Shortly after, Morgan Stanley analysts raised their 12-month price target on Amazon to $2,500, which was previously set at $1,850. The new target price is said to be the highest on Wall Street, with predictions that the company could also surpass the $1 trillion mark in market cap, giving Apple a run for its money.
Tencent Holdings (TCEHY) - Market cap $496 billion (This market cap is according to the PWC report, as Tencent Holdings was unavailable on Google Finance at the time of this writing). This Shenzhen China-based tech giant experienced a 30% increase in total revenues in the second quarter of 2018 over the same period in 2017. Tencent first hit the top 10 list in 2017, knocking Wells Fargo off of the list.
Berkshire Hathaway (BRK.A) – Market cap $517.20 billion. Warren Buffett's holding company reported record net income of $12 billion in the second quarter of 2018, as opposed to $4.26 billion in the same period in 2017. Warren Buffett, its famed CEO, is also known as one of the most successful value-style investors in investing history.
Alibaba (BABA) - Market cap $370.50 billion. China's largest e-commerce company made waves in 2014 when it recorded the world's biggest IPO in history. Founder Jack Ma is retiring and in October 2018 it was announced he will relinquish ownership of the entities that hold Alibaba Group Holding Ltd.’s business licenses in China.
Facebook (FB) – Market cap $444.78 billion. Facebook has the distinction of becoming the fastest company to reach $250 billion in market cap, having done so in about three and a half years since its initial public offering in May 2012. However, amid the Cambridge-Analytica privacy scandal, concerning the 2016 presidential elections and the Brexit vote, the company has experienced some decline. Facebook’s market cap was $629 billion on July 25, 2018, and ended around $510 billion the following day. Thomson Reuters data indicated that $120 billion loss in market value was the biggest single-day drop in history for any publicly held company.
JPMorgan Chase (JPM) - Market cap $362.67 billion. Surviving the economic downturn that began in 2008, it now holds the title of the largest bank in the U.S. JPMorgan Chase has experienced rapid growth and is considered a main player in the country’s retail banking, investment banking, transaction banking, custody banking and asset management spaces, steadily building these businesses over time. Legislative changes, like the Tax Jobs and Cuts Act of 2017, which was favorable for banks, has helped boost JPMorgan’s market capitalization, which is expected to continue to increase.
Bank of America (BAC) - Market cap $282.87 billion. Second quarter 2018 profits exceeded the $5.92 billion analyst expectations, arriving at $6.8 billion. The bank grew consumer and commercial loans, deposits, assets within its Merrill Edge business, took in more net new households in Merrill Lynch, and supported more institutional client activity, which has contributed to its overall upward climb.
Why American Companies Dominate
The U.S. accounts for a disproportionate percentage of the world's largest companies for three reasons:
(a) the relative outperformance of U.S. equities in this bull market;
(b) the strength of the U.S. dollar
(c) the premium valuations accorded to U.S. mega-caps.
According to Nasdaq's Market Review of the First Half of 2018 tech continues to outperform, which is the biggest reason technology titans comprise half of the top 10 list.
Another reason for the dominant U.S. presence in the ranks of the giants is the current strength of the U.S. dollar.
Finally, U.S. mega-caps trade at multiples that have expanded substantially over the past several years, and also at premium valuations compared with their global competitors. That means that a dollar of net income will probably fetch a higher market value for a U.S. mega-cap, compared with a European or Asian company.
Lessons From the Past
In the late 1980s, Japanese companies dominated the ranks of the biggest global firms as the yen soared and the Nikkei index reached stratospheric levels. But the deflationary spiral and market crash in subsequent years that resulted in Japan's lost decades lopped off hundreds of billions in market value of Japanese companies.
In the late 1990s, the dot-com and technology boom resulted in U.S. companies accounting for a disproportionate share of the world's largest companies. The bear market that ensued from 2000 to 2002 resulted in the S&P 500 plunging 45%, while the Nasdaq Composite plummeted almost 80% at its lows. As a result, many former titans were worth a fraction of their peak value by the time the bear was vanquished.
In 2007, it was the Europe's turn. With the euro riding high by the time markets peaked in October 2007, Europe was challenging the U.S. for the most number of mega-caps. And then the Great Recession hit.
Does the fact that U.S. companies now account for 80% of the 10 world's biggest companies suggest "irrational exuberance," to quote the immortal words of one central banker? Could this preponderance of U.S. titans presage an impending market top and perhaps even a savage market correction? Only time will tell.
The Bottom Line
Eight of the biggest companies in the world are American. China has made its presence known, taking two positions from previously-held American companies. History shows that such dominance in the ranks of global titans does not last for very long.