This past week, Apple Inc. became the first publically traded U.S. company to have a market value in excess of $1 trillion. Apple has succeeded because it dominates the smartphone market and is cultivating its rapidly growing service business.
Apple is indeed a Cinderella story. Founded in 1977, the company was an early leader in personal computers. To appreciate its achievement, we need to remember the trials and tribulations it endured. Specifically, Apple faced bankruptcy and lost over $2 billion in the 1990s before it added the iPod and then the iPhone to its MacIntosh personal computers.
The mobile devices and the Apple ecosystem of iTunes, selling music, and the App Store, selling mobile applications for the iPhone and, later, the iPad, enjoyed huge consumer success and disrupted historical ways of conducting business and other aspects of life.
Four other giant tech companies — Amazon, Microsoft, Alphabet Inc. (the parent of Google) and Facebook — follow Apple in the value of their market cap (determined by multiplying the number of their outstanding shares by its stock price).
The dominance of these five tech companies is evidence of the tectonic shift in the global economy. That is, historically, the largest market cap companies have come from industries such as autos and other manufacturers, oil, telephone and pharmaceutics.
The historical context of Apple’s achievement is illustrative of that shift. I have a cartoon in my office that notes that the first $1 billion company was U.S. Steel, which was created in 1901. The financial entrepreneur JP Morgan forged the company in part by merging Carnegie Steel with several rivals. While today U.S. Steel is a relatively small player, I can remember when President John F. Kennedy made time in his schedule to meet with Roger Blough, the CEO of U.S. Steel. These were heady times in the 1960s for U.S. manufacturers because neither Europe nor Japan had recovered from the devastations of World War II. During the Kennedy administration, the companies with the largest capitalizations in the United States were General Motors, Exxon, General Electric and AT&T.
To add historical perspective, in 1995, GE was the first $100 billion company and, in 1999, Microsoft became the first $500 billion company.
One trillion — 1,000 times 1 billion — shows the tremendous growth of corporate America, despite some difficult economic times during the 20th century and even our current century. These have included two world wars, the Great Depression, the 2008 financial meltdown and the Great Recession.
I think we can expect that, a century from now, our leading corporations will have a market cap of 1,000 times Apple’s current valuation as our $20 trillion economy continues to grow.
I cannot grasp the true dimensions of the U.S. economy of a century from now.
Furthermore, I have no idea what type of companies will enjoy such market capitalizations. Just as it was impossible to forecast that technology companies would far outstrip industrials, pharmaceuticals, autos and oils, we cannot accurately forecast tomorrow’s winners.
If history is any guide, these future corporate leaders might not come into existence for 60 years. After all, Apple, Microsoft, Facebook, Google and Amazon did not exist 40 years ago.
The success of Apple is another example of the wisdom of Warren Buffett, whose Berkshire Hathaway company is Apple’s second-largest shareholder. Apple’s stock has doubled since Buffett bought a stake in the company.
When I tabulate that Apple is worth 1,000 times the first $1 billion company, it makes me share Buffett’s enthusiasm for U.S. stocks. The Oracle of Omaha remains optimistic about America and believes heartily in equities as the best way to participate in its success.
Originally published in the Sarasota Herald-Tribune
