Hot on the heels of Apple passing Exxon Mobil to become the most valuable business in the world, there’s another shakeup at a slightly lower level. IBM is the second-largest tech company by market cap last week, behind Apple and just a hair ahead of Microsoft. It’s the first time in 15 years that Big Blue looks larger than Redmond.
Around the turn of the millennium, Microsoft’s market cap was three times the size of IBM’s, topping out at $600 billion during the peak of Microsoft’s powers. That was also the pinnacle of the dot-com bubble. As you might imagine, things have changed since then.
A picture says a lot
To get a sense of how your favorite tech titans of today arrived where they are today, I’ve pulled up some market cap data from Capital IQ, a division of Standard & Poor. These charts will look similar, but not identical, to the share price charts you can pull up on Yahoo Finance. The differences between the two chart styles stem mostly from the company issuing or buying back shares, which affect the stock price but not the total value of all available shares. Feast your eyes on this:
Market capitalizations over the last five years.
In the last five years, IBM’s market cap has nearly doubled while Microsoft’s dropped by about 30 percent. There were times when this position-flip looked inevitable, such as when the Vista debacle hit its shares at the same time as the mortgage-fueled financial crisis of 2008, but it never quite happened. Until now.
Of course, neither of these companies can hold a candle to the recent growth of Apple, which passed IBM’s total value only two years ago and then jumped ahead of Microsoft’s in the summer of 2010. There was a time when lowly Dell was bigger than Apple, and any change in that relationship looked newsworthy. Not so much, these days.
I threw a couple of extra tickers into that chart to provide a sense of scale. You can see Exxon rising and falling with oil prices, everyone taking a hit in 2008 and 2009, and Google’s valuation mirroring Microsoft’s ups and downs—except for the long-term value erosion that Mr. Softy has suffered while Big G did not. Meanwhile, pharmaceutical giant Johnson & Johnson went through the same rises and falls in the markets as our tech pets, but with smaller effects on the stock. J&J is a very mature business, and everybody needs Band-Aids™ and Tylenol. Wild swings just don’t happen to a stock like that.
So in that picture, you can see the difference between still-breathing growth stocks (Apple), empires in decline (Microsoft), established giants on a moderate upswing (Google and IBM), cyclical stocks in fully mature industries (Exxon), and even a Stoic defense play (Johnson & Johnson), which is less sensitive to market swings.
But wait! There’s more!
The differences and the empire-building timelines become even clearer if we zoom out a bit. Here’s the same market-cap rundown over the last 20 years:
Ticker Market cap: 10/2/1991 ($ Millions) Share price: 10/2/1991 (Dollars) Starting price without dividend adjustment (Dollars) Share price: 10/2/2011 (Dollars) Percent change Unadjusted percent change
AAPL 11,532.4 11.85 12.44 381.32 3,117.8 2,695.2
GOOG 32,398.5 100.34 100.34 515.04 413.2 413.2
IBM 30,185 18.8 25.28 174.87 830.1 591.7
JNJ 29,973.7 7.25 10.94 63.69 778.4 482.1
MSFT 15,162.1 1.42 1.81 24.89 1,652.8 1,275.1
XOM 73,216.1 8.56 15.06 72.63 748.4 382.2
Apple hardly mattered in the 1990s and Google didn’t exist. You can tell exactly where Exxon merged with Mobil, and when IBM’s decade of rebuilding ended—Big Blue was more of a cautionary tale than an oft-imitated template for IT success when the ’90s started. Sam Palmisano designed the software and services powerhouse that you see today and that Oracle, HP, and even Cisco want to copy.
And you know, Apple’s chart in the iStuff era looks hauntingly similar to Redmond’s rise a decade earlier, when it soared on the merits of Windows 95. Can Tim Cook keep the good times rolling or will history repeat itself in Cupertino?
You can even suss out the motivations behind a few business decisions from a chart like this. With rapid growth a distant memory, did Microsoft have any choice but to start paying dividends in 2003?
If I may wear my investor hat for a second, those steady little dividend payouts do make a difference, by the way. Buying IBM, Exxon, and J&J stock in 1991 would have netted you a return of somewhere between 5 and 7 times your money—but reinvesting dividends along the way juiced all three returns to about 800 percent, or nine times the original investment. If (or when) Apple’s ridiculous sales and earnings growth subsides, Cupertino is sure to follow Microsoft down Dividend Road. It’s how a mature business keeps shareholders happy.