The March to a $10 Trillion Company

The March to a $10 Trillion Company

By Justin Carbonneau (Twitter | LinkedIn | YouTube) —

Imagine a world where a single company has a market capitalization of $10 trillion. For reference, Apple, one of the world’s most valuable companies as today, has a market cap of $2.8 trillion. And yet, if we take a step back and look at the history of corporate growth and stock market expansion, a $10 trillion company may not be as farfetched as it seems.

A Glimpse into the Past: The Historical Giants

In order to understand the potential growth trajectory to a $10 trillion company, we must first examine the economic giants of the past. At their peak, AT&T and General Electric (GE) were titans of industry that dominated the market. In the mid 1960s, AT&T accounted for a staggering 8% of the S&P 500 while General Motors was 7% of the index (source). In 2000, General Electric accounted for over 5% of the S&P 500 (source).

Although these companies have seen their fortunes wax and wane over the decades, they serve as historical examples of how a single public company can attain a substantial slice of the overall market.

The Math Behind the Growth

Let’s take a step back and think about what it would take for a company like Apple to reach a $10 trillion market cap. With a current market cap of $2.8 trillion as of today, this would require an approximate increase of 3.6 times its current value.

Assuming this growth occurs over the next 15 years (to 2038), it would require an annual compound growth rate of around 7.7%. This is certainly a lofty goal, but not impossible when considering Apple’s historical annual growth rate of about 14% over the past decade, current product line-up, market share and future prospects of the business.

From Validea’s Warren Buffett-based Model

Apple Earnings Per Share (EPS) over the last ten years (from oldest to newest). Extracted from Validea’s Earning Predictability criteria from the Warren Buffett based model.

1.42, 1.61, 2.30, 2.08, 2.30, 3.05, 2.97, 3.28, 5.61, 6.11

AAPL’s long term historical EPS growth rate is 14.5%, based on the 10-year average EPS growth rate, and it is expected to grow earnings 8.0% per year in the future, based on the analysts’ consensus estimated long term growth rate.

But even as Apple continues to grow, so will the overall market. In 2000, the total value of the US stock market was $15.1 trillion, and by the end of 2022, it had soared to $40.5 trillion (the total value was $52 trillion at the end of 2021, source). That represents an annual growth rate of about 5.3%. If we assume this growth rate continues, by 2038 the total market would be worth around $93.7 trillion.

Thus, even as a $10 trillion company, Apple (or another company reaching this milestone) would represent just over 10% of the projected total market value if this projections are accurate. A significant slice, and very unlikely, but like the example of AT&T shows it’s not implausible. Who’s to say in 5- or 10-years American’s won’t be all walking around with some version of Apple’s Vision Pro on their head?

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The Bumpy Road to $10 Trillion

When envisioning the first $10 trillion company, it’s important to remember the inherent volatility and unpredictability of the market. Just as AT&T and GE experienced cycles of boom and bust, any company, no matter how large, is subject to market forces beyond its control.

It’s also worth considering that as a company grows in size, maintaining high growth rates becomes increasingly difficult. As market saturation occurs, companies often find it more challenging to keep up the pace, which can lead to slower growth or even periods of contraction. There’s also the question about regulation and companies becoming too big, just like AT&T and Standard Oil in the early 20th century.

Lessons for Investors

The future march towards a $10 trillion company offers a few key takeaways. One, it highlights the importance of a long-term investing approach. Despite market fluctuations and the constant ebb and flow of individual companies, the overall trajectory of the market has historically been upwards.

Two, diversification remains key. While investing in a potential $10 trillion company may be enticing, remember the fates of AT&T and GE. Both were once seen as invincible, but experienced downturns that few could have predicted. A well-diversified portfolio can help protect against the unpredictable nature of the stock market.

Lastly, while the prospect of a $10 trillion company is exciting, it’s important to focus on the fundamental strength of a company rather than being swayed by its size or market cap alone. The financial health, competitive advantage, and long-term strategies are what determines a successful investment.

I’ll probably see a $10 trillion company in my lifetime, but it’s the march towards that massive number that provides valuable insights into the nature of growth, the dynamics of the market, and the importance of thoughtful long-term investing.

Justin J. Carbonneau
VP at Validea & Partner at Validea Capital Management
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