The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
By definition, the largest companies by market cap are the most valued by investors in absolute terms.
Of course, these companies change all the time. Secular trends rise and fall, and economic cycles rinse and repeat. New companies are built, while former “blue chips” may struggle. For every Enron that busts, there’s an Amazon shooting up through the ranks.
At the end of the day, however, a snapshot of the largest companies at a given time tells us what the market valued the most. And as this week’s chart shows, this simple data series can also tell us a surprising amount about the macroeconomic story over recent years.
ENERGY DOWNTURN, TECH UPTURN
In 2001, oil was about $30/bbl. Only one oil company (Exxon) cracked the top five list by market cap at the time.
Fast forward a decade, when oil prices soared to the $100/bbl neighborhood. At this point, three of five of the largest companies by market cap were now in the oil business: Exxon, PetroChina, and Royal Dutch Shell.
And today? We are back at $40/bbl and no energy companies crack the top five. Instead, the list has been completely replaced by tech companies, including Apple, Alphabet, Amazon, Facebook, and Microsoft.
SCALE IS IN STYLE
Well, scale has always been in style, but now it is achievable in ways like never before. To reach more people, Walmart had to build more stores, expand complex supply chains, and hire new employees. This takes a lot of capital and manpower, and the stakes are high for each new expansion.
Amazon on the other hand, can bring in more revenues with less of the work or risk involved. Scale allows tech companies to get bigger without getting bogged down by many of the problems that companies with millions of employees can run into.
The world’s best tech companies are also able to gain competitive advantages that are extremely difficult to supplant. While oil companies are fighting over a limited supply and have a commoditized end product, Google and Facebook have key businesses that are truly unique and the best at what they do.
For these reasons, tech is likely to top the leaderboard for the largest companies by market cap for the foreseeable future.