Going back to the early 2000s, there were no incidences of companies exceeding the $300B market cap range in the U.S. or abroad and sustaining such a significant valuation outside of brief bubble-like conditions. It had been generally accepted wisdom that companies so large had a difficult time maintaining their valuation because their sheer size led to exposed competitive flanks, a reduced rate of innovation, and practical problems managing themselves. The “too big to grow” problem seemed to melt away in the 2010s, as five technology companies have comfortably exceeded the $300B market cap level and seem to be managing themselves rather well. Even two financial companies have managed to crack the $300B barrier. All of these behemoths are domiciled in the U.S.
It’s also worth noting that the astonishing success of the technology supergiants has generally come at the expense of international and global competitors within the technology and electronics sphere. For example, Apple Inc. generates most of the global profits from consumer electronics and cellphones* – spheres that once belonged to Japanese and European titans such as Sony, Nintendo, Panasonic and Nokia in the 1980s and 1990s. The market cap losses are as staggering as the market cap gains. It’s axiomatic, but with so little market capitalization remaining in Japanese and European electronics companies, it appears that there is little left for the American supergiants to purloin.
A similar dynamic is unfolding in other spaces, where internet titans Alphabet (Google) and Facebook appear to be cannibalizing much of the advertising profit stream that used to flow to diversified media companies. In retail, Amazon looks poised to demolish the traditional retail business model. In these instances, many of the businesses donating market capitalization to the American technology giants reside in the U.S. already. If these “running out of runway” circumstances coincide with economic improvements outside the U.S. and the current dollar bull market gives way to something else – the turn in international fortunes may be upon us.
Certain information contained in this communication constitute “forward-looking statements”. Due to market risk and uncertainties, actual events or results, or the actual performance may differ materially from that reflected or contemplated in such forward-looking statements. Nothing in this blog post shall constitute a recommendation or endorsement to buy or sell any security. Characteristics are included for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these figures. Statistics are based upon third party sources that are deemed to be reliable, however, Cambiar does not guarantee its accuracy or completeness.
Past performance does not necessarily indicate future results. All material is provided for informational purposes only and there is no guarantee that the opinions expressed herein will be valid beyond the date of this presentation/letter.