The Race to $1 Trillion

Yes, trillion with a T! There are a handful of companies attempting to be the first company to reach a market capitalization of 1 trillion dollars. I believe Petro China actually beat them all to the punch back in 2007 but that does not sell proverbial newspapers and television views. I probably use all three of the companies that have the best shot to be first on a daily basis. Well I definitely use AAPL and Google (Alphabet for you sticklers) on a daily basis and probably use Amazon every other day or at the very least once per week. So I have four major questions about these three.

  1. Who will be first?
  2. Is the economy too concentrated?
  3. Should they be removed from the indexes?
  4. Which will not be around in 5 years?

 

Who will be first?

I think AAPL has the best shot to be first as they have an insane amount of cash and a financial friendly board. If they were to have one or two bad quarters they could easily keep momentum strong with a new buy back or dividend program and their management has shown willingness to do so. Amazon could certainly expand into yet another market and shock everyone into a buying frenzy and I think Google feels days away from releasing the NS5’s from iRobot featuring Will Smith so it is anybody’s game but I do believe AAPL will be first.

 

Is the economy too concentrated?

Earlier I mentioned I use these companies and their services every day or nearly every day. Does this present a problem that we are too reliant on only a handful of companies for our satisfaction and daily life? Are we prone to a hack where AAPL shares public information, phone records, etc. or Amazon only displays Chinese products or Google changes our perception of reality while only displaying certain negative (or positive) search results? What if one of them has a terrible scandal and are so big and derail the entire economy? Kind of the way the railroad industry took a hit and caused the 1890’s depression. Is this part of the game or is it becoming problematic and monopolistic? I think we should at least entertain the discussion and for the record I am a free market capitalist and a patriot at the same time.

 

Should they be removed from the indexes?

Similar to the point above but at what point are the indexes no longer an accurate reflection of the American economy because they are too skewed by only a handful of companies? One could argue that the economy is too concentrated and the index should be allowed to be skewed by a handful of companies if that is really how the cookie crumbles. I am not sure how I feel about this. The major risk or question is holding Dow 30 or SP500 no different than holding FAANG (Facebook, AAPL, Amazon, Netflix and Google)? If so, a lot of American investors might be taking on far too much risk thinking they’re properly investing in an index. As traders we are aware of these nuances and the underlying risk but Sally Jo and Bobby Will have no clue the SP500 (more specifically the Nasdaq) has been largely a 3-5 stock rodeo over the past 12-18 months. The question is… is this fair? Has it happened historically? If so, what happened following? This type of investigation is what separates average market returns and being able to quit your job! Something for a future post I suppose.

 

Which will not be around in 5 years?

AAPL will be the first to 1 trillion and it also has the greatest chance of suffering defeat over the next five years. Again, all my opinion, so please no AAPL fan boy death threats (I am in the iEco System happily). But I think AAPL has struggled to innovate in the post Jobs’ era and the market typically only overpays for innovation & growth. I am not saying AAPL is over or under valued but do believe the iEco System is much less ‘stable’ than the services Amazon and Google offer. Most of the people that mention the iEco System complain whereas Google and Amazon are typically mentioned in positive light. This slowly changing sentiment combined with a lack of innovation (or too high of expectations perhaps) is probably the best chance to kill one of these giants. Is it likely? Who knows.

 

Disclosure: I am happily long all three. I do not think I need to disclose any more than that.

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