I tend to avoid most investment opinions I hear or read on popular media outlets. But occasionally something is said that piques my interest.
Jim Breyer, founder and CEO of Breyer Capital and a partner in Accel Partners, piqued my interest in a recent CNBC interview published on Yahoo! Finance. So, what did Breyer proffer that set my antennae a buzz? Google (Nasdaq: GOOG) has the potential to hit a trillion-dollar market-cap… but with an engulfing qualifier – within the next 10 years.
Breyer’s comment appears innocuous enough, and it just might be. No one knows where any of us will be in 10 years. But if the trillion-dollar chatter goes viral, chances are, contra Breyers, Google’s market value will move down, not up. That is, if recent history serves as a guide.
In late 1999 and early 2000, Microsoft (Nasdaq: MSFT) and Cisco Systems (Nasdaq: CSCO) were the odds-on favorite to reach the coveted trillion-dollar benchmark. This was the first time “trillion” and “market cap” had been cobbled together in investors’ minds.
In December 1999, Microsoft shares hit an all-time high to lift its market value to $616 billion. Microsoft, though, was unable to sustain the momentum; its shares soon backslid into the high $500s.
Microsoft’s deceleration prompted many analysts to unhitch their trillion-dollar wagons from Microsoft and hitch them to Cisco. By March 2000, the influx of bandwagoners had lifted Cisco’s market cap to $610 billion.
Cisco was certainly the belle of the ball: Thirty-seven investment banks offered either a “buy” or a “strong buy” recommendation on Cisco at the time. None recommended a “sell,” or even a “hold.”
But after peaking at $610 billion, Cisco began to lose momentum, and continued to loss momentum through the first decade of the 2000s. By the end of 2010, Cisco’s market cap had dwindled to $125 billion. (Microsoft’s market cap had been taken down to around $220 billion.)
Memories are short. In 2012, tongues were again wagging over the prospect of a new trillion-dollar company. Apple Inc. (Nasdaq: AAPL) had been slotted as odds-on favorite: CNBC, Forbes, The Guardian, BusinessInsider, PC Magazine, The New York Times, The Los Angeles Times, The Economist, and countless other media outlets were openly anticipating, if not promoting, Apple as the world’s first trillion-dollar company in waiting. It wasn’t a matter of if; it was a matter of when.
Momentum was certainly on Apple’s side: Its share price had increased 20-fold since 2005. When it pierced $700 in September 2012, $1,000 was a given. After all, $1,000 was “only” another 43% move higher (which goes to show how jaded and unrealistic investors can become to expect 43% moves as a given.)
Apple’s financially sophisticated cheerleaders were foolishly forgetting how fickle a mistress momentum can be. For days, months, even years, momentum leads investors to believe that the impermanent is permanent. That is, until the day she vanishes and investors realize how impermanent momentum can be.
As for Apple, after the final push through $700, momentum fled. Apple shares were soon swooning, and swooned all the way down to $400. After a 7-for1 stock split, Apples shares trade around $93, or $650 pre-split. Apple is still $430 billion shy of a trillion.
As for Google, it has even more ground to cover, given its $400-billion market cap. To be sure, a lot can happen in 10 years – all of which no one can predict. In the interim, should Google and a trillion dollars become cobbled together in more investors’ minds, I’d expect the prospect of a trillion-dollar market cap to become less and less likely.
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