By Tim Courtney, Chief Investment Officer
Big business has no doubt gotten bigger in recent years. The five largest U.S. companies, Apple, Microsoft, Amazon, Alphabet and Facebook, have a combined market capitalization of about $8 trillion.1 In fact, these five companies are now easily worth more than the GDP of Japan — the third largest economy in the world.2
Even at the smaller end of the spectrum corporations have expanded. For example, the Russell Indexes recently changed the definition of a small-cap company to anything with a market cap below $5.2 billion.3 This would have been considered a healthy sized mid-cap company only a few years ago.
Companies have gotten larger, but at the same time, publicly traded companies have become fewer. Fewer public companies is partly the result of many companies remaining private for simpler regulatory and reporting requirements. Low interest rates and easy access to capital have also given private companies viable alternatives for raising capital outside of going public.4
Additionally, many smaller public companies have elected to be acquired by larger companies — in many cases because larger companies are better positioned to deal with an increasingly complicated business and regulatory environment. While this is nothing new, there have been relatively few instances of government antitrust actions in recent decades to dissuade M&A activity.5
This may be changing. As market capitalization and cash flows have become enormous, the calls for regulation have become much louder.6 House lawmakers recently proposed a bill aimed to make Amazon and other mega-cap corporations essentially split in two or eliminate their private-label products.7 At the latest G7 Leaders’ Summit, it was agreed to have a global minimum corporate tax rate of at least 15% to deter multinational companies from moving to lower taxed countries.8 China is taking steps to undermine large companies that the government believes are a threat to its rule.9
While regulatory risks are rising, it is unclear how this will impact markets or even how the government plans to address large businesses operating across multiple complex markets. As these large companies are to some degree held in almost every U.S. investor’s portfolio, we are closely watching this and assessing potential impacts to these companies’ businesses and valuations.
It is likely that calls for antitrust actions will become even louder. Whether they actually materialize remains to be seen.
1. Nasdaq.com (6/7/21) — Markets: Google surpasses Amazon to become 3rd most valuable US company
2. Marker (2/16/21) — The 5 biggest tech companies are now worth more than Japan’s GDP
3. Barron’s (6/14/21) — Changes in this year’s Russell Index rebalancing are too big to ignore
4. Bloomberg (4/9/18) – Where have all the public companies gone?
5. Harvard Business Review (12/15/17) — The rise, fall, and rebirth of the U.S. antitrust movement
6. PC Magazine (6/11/21) — The reckoning is coming: Regulating Big Tech
7. The Wall Street Journal (6/11/21) — House bills seek to break up Amazon and other Big Tech companies
8. NPR (6/7/21) — G-7 member nations agree to global minimum tax rate of 15%
9. The Financial Times (6/18/21) — How China is targeting Big Techz
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