The $4 Trillion Club: Why Apple, Microsoft, Nvidia, and Google Are Just Getting Started

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To investors,

Yesterday Google became the fourth company in history to hit a $4 trillion market cap. They join Nvidia, Apple, and Microsoft in this rare club of companies.

Nvidia became the first company ever to reach $4 trillion in July of this year, which was quickly followed by Microsoft crossing the same threshold in intraday trading on July 31st. The only problem is that Microsoft closed below $4 trillion that day and the company didn’t surpass the milestone again until last month, which is when they finally closed the trading day above the magic number of $4 trillion.

Apple followed closely behind and crossed the milestone in late October. This means we had never seen a single company reach a $4 trillion market cap, but all of a sudden we have four companies that pulled off the accomplishment in the last five months.

Welcome to the new world of business and finance.

The winners are worth more than you thought and the losers become irrelevant faster than you thought possible. So we must ask ourselves, what is driving the meteoric growth for these large tech companies?

There are a few drivers of valuation. First, these companies are producing insane amounts of revenue.

* Apple revenue: $416 billion (+6%)

* Google revenue: $385 billion +13%)

* Nvidia revenue: $130 billion (+114%)

* Microsoft revenue: $281 billion (+15%)

These numbers are ridiculous. Multi-trillion dollar companies growing double-digit percentages year-over-year and Nvidia more than doubling over the last 12 months.

But this is not only a story of top line revenue growth. These four companies are producing real free cash flow too.

* Apple FCF: $98 billion

* Google FCF: $73 billion

* Nvidia FCF: $60 billion

* Microsoft FCF: $78 billion

Investors look at a lot of data points to measure a company’s value, but nothing is more important than free cash flow and these companies are delivering on that metric.

This free cash flow is being used to do three big things: buyback shares, pay dividends, and make substantial CapEx investments in AI infrastructure. The first two uses of free cash flow are self-explanatory, but it is this third one that has everyone’s attention.

Google is projected to spend around $90 billion on CapEx this year and a significant portion will go to AI infrastructure for their cloud, search, and YouTube businesses. Microsoft is planning to spend around $80 billion with a big focus on AI-data centers and cloud infrastructure for training models, along with deploying AI and cloud applications.

Apple is taking a different approach. They plan to only spend $12.7 billion on CapEx, but majority of it is focused on first-party AI data center infrastructure and proprietary silicon. A big reason why Apple spends so much less on CapEx is their decision to use a hybrid model with third-party cloud providers for large compute demands.

And finally, Nvidia. They don’t spend CapEx on data centers or other traditional AI infrastructure. Instead, Nvidia is one of the big winners from all the CapEx spend by these large companies, because analysts believe Nvidia will capture 25-35% of the total $405 billion in AI-related infrastructure spending globally.

So this brings us back to the fact that four different companies have become $4 trillion companies in the last five months. That is only possible because of the large, addressable market of artificial intelligence. If you evaluate these companies through the rearview mirror of history, you may be worried about their future prospects. You will claim things are expensive or you will question the future durability of their demand.

But if you evaluate these companies as the winners of the largest addressable market of our lifetime, then you realize it is much more likely that each of these four companies are undervalued relative to their future financial performance. Take humanoid robots as a single example. Wall Street banks see the industry growing into a multi-trillion dollar juggernaut over the next 25 years, including a compound annual growth rate of 40-100% for the foreseeable future.

Companies are going to have to innovate on hardware and software to make those projections become a reality. This is noteworthy because humanoid robots are a net new industry. It didn’t previously exist, so that will be trillions of dollars in economic value up for grabs. And who do you think is going to capture some of it?

The largest, fastest-growing, most innovative companies in the world.

There will be plenty of startups that create brand new businesses, but one thing we have learned from the AI boom is that incumbents are very well positioned to benefit from this innovation period. And then there is the new US government support for the industry, which in turn is support for these large cap tech companies.

AI czar David Sacks tweeted yesterday “According to today’s WSJ, AI-related investment accounts for half of GDP growth. A reversal would risk recession. We can’t afford to go backwards.”

And then Energy Secretary Chris Wright said in a television interview yesterday that the administration’s new Genesis Mission is “an all-in national effort to take the power of AI and pair it with the 40,000 outstanding scientists and engineers at our national labs.”

So you have a massive addressable market, tons of free cash flow, a government-driven tailwind, and monetary policy that is easing. What do you think is going to happen? You think stocks are going to enter a decade-long recession or bear market? Give me a break.

The era of $4 trillion companies is here. Eventually we will have $10 trillion companies. No one is going to stop the inevitable.

Have a great day. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

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