The Role of Covid in Driving Trillion-dollar Valuations

A billion here, a billion there, and before you realize it, you're discussing real money," the late US Senator Everett Dirksen once observed, referring to America's excessive federal spending. It was a sardonic understatement to highlight not just wasteful government spending but also the worth of a billion dollars, which is one followed by nine zeroes — as in, the US $1,000,000,000.?

Even though the world's first billion-dollar firm (US Steel) was founded in 1901 and the world's first billionaire (John Rockefeller of Standard Oil) was born in 1916, even in the 1950s, when Dirksen is reported to have remarked, a billion was a large sum of money.

Money Matters and Its Significance Varies for Each Individual and Company

A billion dollars — or even a million dollars — is still a large sum of money for a person today. There are around 2,800 acknowledged billionaires globally, with many more unknown. Tesla's Elon Musk is leading the pack with an estimated wealth of $280 billion. However, it is becoming chump change in the business world.?

Thanks to speculative optimism and hype, companies created on a wing and a prayer, or an app and hope, can quickly reach a billion-dollar valuation. Some people survive in an era of easy come, easy go, while others do not. Unicorns, dubbed after the mythological animal by venture capitalist Aileen Lee to symbolize the statistical rarity of such successful ventures, have become a popular way to gauge entrepreneurial zeal.

The Gradual Evolution of Successful Ventures

There were less than 40 unicorns in 2013 when the phrase was first used to describe firms that expanded up swiftly to a billion dollars, mainly in the United States. There are around 1,000 unicorns now, with 300 in China and 100 in India. The designation of Decacorn has been presented to 30 unicorns, including well-known companies like SpaceX, Instacart, Stripe, and ByteDance, all of which are valued between $10 billion and $100 billion. When Decacorns reach a value of more than $100 billion, they become Hectocorns.

Unicorns, Decacorns, and Hectocorns are private startup enterprises. These venture-backed entities are recognized and evaluated for their growth potential rather than their financial success up until this point. Using "grow big fast" (GBF) techniques, also known as Blitzscaling, these firms strive to expand swiftly through huge investment rounds and price cuts to obtain a competitive advantage and outrun competitors. Many do not earn a profit to gain this footing or market share; instead, they burn money to get ahead.

A Glimpse at Victorious Journey of Prestigious Companies

Before going public, Facebook was the first Decacorn and Hectocorn in history, with a valuation of over $100 billion (once they go public with an IPO, they no longer qualify for the informal -corn suffix).?

Alibaba of China managed to secure the second position on the bandwagon.

ByteDance, which owns the software TikTok and is backed by investors including Sequoia Capital China and Softbank Group, is a current Decacorn, valued at more than $140 billion - more remarkable than the current market capitalization of venerable corporations like AT&T and American Express.

84 Decacorns have been formed since Facebook became the first privately-held Decacorn-turned-Hectocorn, a $100 billion-plus privately-held firm. Not all of them have made it, with 33 of them losing their status due to various factors.?

This leaves 51 companies still on the verge of going public, putting them in unfamiliar territory. They include companies like Byju's in India, which is presently valued at $21 billion, making it the world's most valuable education technology startup, and Yuanfudao in China, valued at $15.5 billion.

The Trend of the "T" Companies

While Unicorns and Decacorns grow through large funding rounds from private venture capital firms and investors to gain an early foothold in the marketplace, companies that do go public and scale to a stratospheric height of a trillion dollars sitting at the top of the pyramid — companies for which no term has yet been agreed upon. Pegasus has been proposed as a name for corporations that reach the new valuation peak of $1 trillion (like the unicorn, the Pegasus is also a mythical horse, but with the wind beneath its wings). Big Tech is the collective name, and they are popularized as the "T" companies.

A Whopping Market Cap of $1 Trillion

A trillion dollars is a huge sum. To begin with, it's 1 followed by 12 zeros, as in $1,000,000,000,000. Except for a few countries, a trillion dollars is higher than their Gross Domestic Product (GDP). It exceeds the GDPs of Switzerland, Sweden, and Argentina, all of which have nominal GDPs below one trillion dollars. Apple's recent valuation of $3 trillion (it has subsequently declined to around $ 2.65 trillion at writing) surpassed the GDP of the United Kingdom and India, two of the world's largest countries.

There are perhaps half a dozen corporations today with a market capitalization of over $1 trillion. Except for Saudi Aramco, all are American-based and have a tech bent.?

Apple ($2.85 trillion) is the most valuable company in the world as of March 31, 2022, followed by Microsoft ($2.31 trillion), Alphabet/Google ($1.84 trillion), Amazon ($1.65 trillion), and Tesla ($1.1 trillion).?

PetroChina and Meta/Facebook are two companies that have reached or nibbled at the 1-T milestone and then receded.

The Rising Concerns Over the Emergence of Tech Companies

The ascent of US tech companies has sparked fears about 'Big Tech,' a term that evokes the market domination of a few companies in other industries such as Big Oil and Big Pharma. For example, the extensive five tech stocks, formerly known as FAAMG (Facebook, Apple, Amazon, Microsoft, and Google) and now known as TAAMG (with Tesla replacing Facebook, which has lost nearly 30% of its value), account for roughly a quarter of the market capitalization of the entire Standard&Poor's 500 companies. This effectively means that 1% of the index's companies account for around 25% of the total market value.

This level of market concentration isn't uncommon. In reality, some corporations held a more significant part of the market in the past.?

AT&T accounted for 13% of the entire US stock market value in 1932, more than twice Apple's current 6% share of the S and P-value (roughly $ 40 trillion).?

In 1928, General Motors had 8% of the market share, and in 1970, IBM had 7%.?

However, there is a significant time and tempo difference in how modern Big Tech became bellwethers.

Pre and Post-Covid Scenario

While four of the five American corporations had a market cap of $1 trillion before the pandemic, the commencement of Covid-19 — which slowed the growth of many traditional legacy companies — propelled Big Tech to greater heights. For example, Apple's market capitalization peaked at $1 trillion on August 2, 2018, more than quadrupled in just two years, reaching $2 trillion on August 19, 2020, amid the epidemic.

?It took even less time (on January 3, 2022) to break through the $3 trillion barriers before easing marginally. Similarly, Google went from scaling 1-T in January 2020 to topping 2-T in November 2021. Microsoft went from breaching $1 trillion in June 2019 to surpassing $2 trillion in June 2021.

The Pandemic and Its Impact on Online Ventures

To begin with, four members of the Trillion Dollar Club dominated their respective markets even before the pandemic: Apple in smartphones, Microsoft in cloud computing, Alphabet/Google in Internet advertising, and Amazon in online shopping. The stay-at-home and buy-from-home economy rewarded these businesses handsomely when the pandemic hit. While already battered brick-and-mortar businesses failed, internet behemoths thrived, aided by stimulus payments that put money in people's pockets on top of low borrowing rates.

As individuals spent more time indoors and online, Apple and Microsoft sales of IT goods and cloud services increased, as did Amazon retailing and Google services. In many ways, the pandemic confirmed a trend is developing before Covid-19 struck.

Rewinding the Last 25 Years

If we rewind the past 25 years, the top 10 companies by market valuation have been a mix of oil, food, pharmaceuticals, and technology, all valued between $100 million and $220 million.?

General Electric, Royal Dutch, Microsoft, Exxon Mobil, Coca-Cola, Intel, Nippon, Merck Toyota, and Novartis were among the world's most valuable corporations in 1997.

A decade ago, oil corporations accounted for five of the top 10 publicly traded companies by market capitalization, with Exxon Mobil and PetroChina heading the pack.?

Only two tech businesses made a list: Apple (#3) and Microsoft (#10). PetroChina, a Chinese oil and gas business and a subsidiary of the state-owned China National Petroleum Corporation, was the first company to surpass $1 trillion in market capitalization in 2007, a decade before Apple.

Apple debuted its first iPhone in January 2007, while the company was still under $100 billion (it was about $73.4 billion), just as PetroChina was approaching a $1 trillion valuation. When introducing the iPhone, Apple creator Steve Jobs promised a "leapfrog product" that would be "far smarter than any mobile device has ever been, incredibly easy to use." Not only did Apple create the phone, but it also reinvented the market.

The iPhone, undeniably, became one of the most successful gadgets in history, selling more than $200 billion yearly in less than a decade. The smartphone has grown so familiar that television host Jason Silva said, "iPhone, therefore I am," echoing philosopher Descartes. The iPhone's ability to propel Apple to the top was evident in 2012, when it supplanted ExxonMobil as the world's most valuable business, with PetroChina falling to third.

A Summary of the New-Age Pinnacles Driven by Technology

Apple had never lost its lead in the decade since, save for a brief period in 2019 when Microsoft briefly overtook it. Microsoft, founded just a few months before Apple by Jobs' contemporary Bill Gates, is another money-making juggernaut, frequently ranked with Apple as one of the world's most lucrative corporations.

Microsoft relaunched itself with cloud computing, the largest revenue source for a firm that was once synonymous with software, just as Apple did with the iPhone. Compared to Apple and Microsoft, which were formed in the mid-1970s, Amazon and Facebook were founded in the 1990s; Tesla was founded in 2003. However, each has carved out a niche in its market, with competitors trailing far behind.

Apple, Microsoft, Google/Alphabet, Amazon, and Tesla occupy the top five positions, with Nvidia, Meta/Facebook, and TSMC in the 5-10 slot. By early this year, Big Tech had completely trumped traditional companies, with eight of the ten most valuable companies in the world all belonging to the tech stable: Apple, Microsoft, Google/Alphabet, Amazon, and Tesla occupying the top five positions. Berkshire Hathaway was ranked #6, and United Health was ranked #10.

So, how valuable are the T-companies, and how much more can they — and will they — grow? What drove them to such dizzying heights, and will they be able to stay alive? As the world teeters on the edge of war and pestilence, these are the questions that plague every market enthusiast. The current turbulence surrounding Twitter's hostile bid and Netflix's stock crash has created new value problems. But one thing appears inevitable, at least in our lifetime: the trillion-dollar pinnacle will become the new apex for major corporations.