How Apple, Amazon, Alphabet, and Microsoft Became $1 Trillion Companies
There’s one cost-cutting shortcut they all have in common
On January 16th, the market cap of Google’s parent company Alphabet crossed over $1 trillion for the first time, and the company joined Apple, Amazon, and Microsoft as the only U.S. companies to ever achieve that once unimaginable valuation. The way these four businesses have grown — and continue to grow even at their massive size — is remarkable, and there’s a unique trait they all share that other companies can learn from.
To put in perspective just how impressive that feat is, the combined value of Microsoft, Apple, Amazon, and Alphabet at $4.97 trillion dollars is worth more than the entire London Stock Exchange. As in, all 3,000 companies on the LSE added together. If Alphabet, Apple, Amazon, and Microsoft (let’s call them “MA3,” to make things easier) broke off and formed their own stock exchange, it would collectively be the fourth largest stock exchange in the world, trailing only the NYSE, NASDAQ, and Tokyo Stock Exchange.
And it’s not just the sheer size of MA3 that’s jaw-dropping — the rate of growth has been staggering, too. In the past 10 years, MA3 has grown from $588 billion in combined market cap to nearly $5 trillion. That’s a 23.8% IRR (internal rate of return), which would be double the IRR of the S&P 500 (11.8%) and the Dow Jones Industrial Average (10.5%) during that time.
By at least one measure, MA3 is growing even faster than startups, which are known for astronomical expansion. One way to quantify startup growth is by looking at the performance of their investors. Cambridge Associates publishes a benchmark of the investing performance of venture capital and breaks out the return performance of the top quartile of VC firms who in theory are investing in the top startups. If you average returns from these best firms over the past decade, you get a 22.9% IRR, which is outstanding but still below that of MA3.
Microsoft is so big that to grow just 1%, it has to add the entire market cap of Pinterest.
In other words, simply buying and holding Microsoft, Apple, Amazon, and Alphabet stock would have…