All of the world's 10 largest companies as measured by market capitalization are American. Market capitalization is the total value of a company's entire purchased 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.
Most of these companies are mega cap companies, or those with market capitalizations above $300 billion.
Half of the top 10 ranking are technology companies, while two deal in financials, two are in consumer services, and one is in energy.
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 Feb 2., 2019 and are based on Google Finance):
Apple (AAPL) – Apple was the first company to surpass a market cap of $1 trillion on Aug. 2, 2018, but has since dropped in valuation thanks in part to struggling iPhone sales. It now stands at $785.19 billion. Its devices and services like the App Store still reap billions of dollars. At one point the computer-maker nearly faced bankruptcy, but has evolved into a successful tech giant since it was founded in 1976.
Alphabet (GOOGL & GOOG) – With two ticker symbols, the combined market cap stands at $722.77 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 since it went public in 2004.
Microsoft (MSFT) – Microsoft's market cap stands at $788.55 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 mainstays toward cloud-based products and services, such as its Azure cloud services and the Office 365. It constantly produces new software and updates of its Windows operating systems and client and server software.
Amazon (AMZN) – Market cap $795.18 billion. Amazon's shares reached $2,000 per share in August 2018 for the first time. Shortly after, Morgan Stanley analysts raised their 12-month price target on Amazon to $2,500 from $1,850, putting at an expected market cap of $1.2 trillion. The stock has climbed dramatically since it went public in 1997.
Berkshire Hathaway (BRK.A) – Market cap $285.08 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.
Facebook (FB) – This social media giant's market cap currently $398.11 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, misinformation, bias, user data, and potential regulation, the company declined. 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) - This bank currently has a market cap of $345.44 billion. Surviving the economic downturn that began in 2008, it now holds the title of the largest bank in the world. 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.
Bank of America (BAC) - This bank has a market cap of $278.53 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.
Johnson & Johnson (JNJ) - With a current market cap of $359.92 billion, this manufacturer of medical devices, pharmaceuticals, and consumer goods posted stronger-than-expected earnings for the fourth quarter of 2018 despite struggling with a public scandal relating to allegations of asbestos in its popular baby powder product. The company denied the accusations.
Exxon Mobil Corp (XOM) - This international oil and gas corporation, which was formed by the merger of Exxon and Mobil in 1999, currently has a market capitalization of $321.43 billion.
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 percent, 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
In part due to tariffs and trade war tensions begun the summer of 2018, Chinese companies that appeared in the top 10 as of March 2018 have dropped off the list. History shows that such dominance in the ranks of global titans does not last for very long.