In an earlier post, we covered the topic of U.S. stock market building a perfect house of cards with four pillars – OpenAI (private), Nvidia (NVDA), Tesla (TSLA) & Oracle (ORCL). In this post, we shall dive into an “exclusive” club of trillion-dollar valuation of U.S. based companies!
There are currently 9 members of this exclusive club that have crossed a trillion-dollar valuation mark or market capitalization (cap) as it is known in the U.S. stock market. They are listed here in the order from the highest to lowest market cap:
- Nvidia (NVDA): $4.55 trillion
- Microsoft (MSFT): $3.85 trillion
- Apple (APPL): $3.79 trillion
- Google parent Alphabet (GOOG): $2.95 trillion
- Amazon (AMZN): $2.34 trillion
- Facebook parent Meta (META): $1.85 trillion
- Broadcom (AVGO): $1.56 trillion
- Tesla (TSLA): $1.43 trillion
- Berkshire Hathaway (BRK): $1.08 trillion
I believe that the market participants are going to have the ‘rude awakening’ soon and get the rug pulled from underneath them as we have built all these valuations in the fantasy-land.
As an example, Nvidia alone is worth now more than the GDP of India, a country with the largest population on this earth – close to 1.5 billion population now having surpassed China. GDP of India is ranked 4th globally now for 2025 after U.S., China, Japan and Germany. Further, India is expected to overtake the GDP number of Germany in a short few years (2 or 3) and become the 3rd largest after U.S. and China.
Does any of these companies warrant such a high valuation in terms of the multiple? Hardly a few, if any.
Based on variety of metrics such as price to earnings, price to cash flow, price to sales, price to book and sustainable growth rate, the only company that can come remotely close to a fair valuation is the last in the list – Berkshire Hathaway.
Even, that, too, is a bit expensive compared to its historical average – close to twice the book value versus 1 or 1.25 times the book value, yet, it is the most worthy candidate of all to command a trillion-dollar valuation. The rest of them is nothing but a fluff or even hot air in terms of valuations, which we have covered at length in our earlier posts even though many of them are having robust numbers when it comes to revenue and profitability with a few exceptions like Tesla and Amazon.
With a different lens, there are a few worthy candidates for the trillion-dollar club such as Microsoft, Apple, Alphabet and Meta. However, they are priced at about at least twice as high compared to their ‘traditional’ and ‘deserved’ valuation. Hence, the list shrinks significantly – down from 9 to 4 if adjusted for valuations by Mr. Market. With that said, there is an excellent chance that Berkshire Hathaway may surpass all the tech companies in terms of valuation in upcoming years and even be the most valued company in the world. I am counting on that or even rooting for that. More on that a bit later…
Clearly, Nvidia has a phony crown bestowed by mad market participants enabled by sheepish, if not evil, herd of corporate chieftains who are investing in AI like there is no tomorrow while having a total disregard for human needs and contributions. It may not be long before they come to realize their enormous and inexcusable stupidity and correct their courses which immediately will strip away the crown from the ‘temporary’ beneficiary of this madness.
Given this extreme level of enthusiasm in a current environment, if not an outright euphoria, market madness or lunacy, we shall routinely review this list consisting of trillion-dollar valuation. Let us say every 6 months to see who remains a member of this exclusive club. As we regularly revisit this list, we may very well start noticing that the list will continue to shrink and shrink, if not outright disappear as the worst-case scenario of economic depression and remain so for the foreseeable future until many of these club members truly “earn” their spot there.
With each passing six months period or in about 6 to 18 months the list will shrink markedly. Music can play only for so long. Mr. Market will be fortunate to even have one member in his exclusive club under a dire situation that United States is heading into. If any, perhaps, Mr. Buffett, the investment legend, may stand tall and be invited to this club, especially since he has a huge cash hoard (about $350 billion) to deploy once the market crashes and burns. The writing is on the wall now, unfortunately.
Do expect Mr. Buffett to double his money in next 5 to 7 years, if not sooner, as he would invest in the ‘fat pitch’ deals or opportunities in the market while many investors shall be crying. It is not that far-fetched to think that Berkshire Hathaway could be the only company retaining a trillion-dollar valuation or one of the few once all the dust settles. Further, it cannot be any more timely that Mr. Buffett is exiting the investment scene, at least from the foreground, after a spectacular success (a huge understatement) in the investment world over the course of last 5 plus decades. Mr. Warren Buffett is stepping down from the CEO position at the end of 2025 at the ripe age of 95 and we must pay the greatest tribute to him and his unparalleled success.
Clearly, the companies and economies will continue to grow and eventually some of them will truly “earn” their valuation of trillion-dollars, though, it will be a “while” before we see that on a truly sustainable basis, at least 3 to 5 years if not longer.
As an example, Mr. Buffet in addition to his investment acumen was also a fortunate recipient of this market bonanza in terms of the extended valuation namely for Apple, one of his largest holdings. That has been his crowning achievement on top of all the great investments he made over the decades. However, Apple has been on the chopping block in his portfolio for last several quarters as Mr. Buffett has been the net seller of equities (stocks) for over two years now which generally is not the case in his investment career.
I expected that Mr. Buffet may take his sweet time to “lighten up” on his Apple holdings given his steady hands yet to my pleasant surprise, he chopped off his Apple stake so much more aggressively than I imagined. Instead of couple years, he managed to do it only in a couple quarters. However, he still has a pretty sizeable position in Apple at over $70 billion and 23% of his investment portfolio, which appears to me still highly concentrated in an over-valued stock.
Apple shares traditionally sold at low teens price to earnings multiple, rightfully so, given its steady, stoic and low growth model. Now, the multiple has literally tripled, close to 40 PE, when the company is much more mature and has already reached over $400 billion in revenue. Go figure!
The law of large numbers is irrefutable and works like a universal law of gravity. Basically, growing from $1 billion revenue to $10 billion is extremely difficult and herculean task as anyone can imagine. Then growing from $10 billion to $100 billion is even more difficult…so how about growing from $100 billion to $1,000 billion, which is a trillion-dollar mark for the revenue. I think you get the idea…
Even the gigantic revenue numbers, the highest amongst all companies, are approaching, though, have yet to crack $700 billion by Walmart and Amazon, both low margin businesses.
Hence, it would not be surprising if Mr. Buffett halves his Apple position once again in the next few quarters. His other major holdings were American Express (AXP), a perennial holding and Bank of America (BAC) that also he is lightening up in quite a meaningful way. These 3 stocks alone currently constitute 50% of his portfolio.
Apple, itself, not by design, but by a fortunate accident, represented close to half of Mr. Buffett’s investment portfolio as well as the company market cap in 2023, unprecedented amount of concentration even with his own standards. Now, the Apple exposure cut in half yet representing a meaningful concentration is prone to major risk if the markets were to tumble sooner than later. Hence, I would further bet that Mr. Buffett will continue to lighten up more on his Apple stake.
Former Fed Chairman, Alan Greenspan, uttered the famous words – “irrational exuberance” back in 1996 only to fall on deaf ears of Mr. Market that peaked in March of 2000 to have the Internet bubble burst later. Hence, it took over 3 years for Mr. Market to realize his madness and see that he was on the wrong track. Such is the case now as well – once again helping form the 3rd crisis in less than 3 decades. Poor Gen Z and millennial babies! Baby boomers and Gen X have had so much fun and their share of grief as well, however.
For anyone seeing this for the first time or needing a reminder, these crisis are enumerated here again: Internet bubble burst of 2000, housing crisis of 2008 and third one is on a count down! OpenAI unveiled ChatGPT in November 2022 and it has been about 3 years now already, so how long the AI craze may continue is anyone’s guess, though, it is reasonable to think that it will not last that long given the lessons of history and past behaviors of Mr. Market who is sometimes euphoric and at times depressed.
History never repeats, though, it always rhymes.
Oh well, as if all of this were not enough, the U.S. Government just shut down this morning now even inflaming the risk of flying high altitude and blind with no proper economic data! It is a wake-up call for America from complacency for sure!!
Mr. Warren Buffett often advised that “Be fearful when others are greedy and be greedy when others are fearful”. It is a high time to become fearful now as U.S. investors continue to play with fire…Wishing the best for us all.
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