My, Look How They've Grown

On Tuesday, Alphabet was briefly valued at $570 billion. How did firms come to be worth so much money?

Peter Power / Reuters

On Tuesday morning, the market was ready to crown a new firm as the most-valuable public company. The market capitalization of Alphabet, Google’s parent company, soared to $570 billion after the release of solid earnings numbers—which surpassed Apple’s $535 billion. By midday, the companies both hovered below $530 billion.

The “war” for the top spot between Alphabet and Apple is unlikely to end anytime soon, as one good (or bad) earnings report can be enough to shift the balance. That’s exactly what happened this week. Last summer, Google announced that it would be reorganizing its operations under a parent company, called Alphabet, so investors could have a better view of what was really going on in each of its ventures. After investors took a look at these finances and liked what they saw on Monday, Alphabet was poised to overtake Apple when the markets opened the following day.

Regardless of which company’s valuation happens to be highest during any given quarter, it’s pretty astounding that both are past halfway to a trillion dollars. How did they get so large? First, these are two tech companies that have been incredibly successful at getting millions of people to use their services or products—the iPhone for Apple, and search for Google.

Secondly, like other tech giants before them, both Apple and Google have been prolific acquirers. Google has been the more prolific of the two—since 1998, it’s estimated that Google has bought more than 170 companies and has spent some $24 billion on its 10 most expensive buys. (Though last year, the company seemed to have slowed down in its M&A activity.) On the other hand, Apple was reportedly not seriously in the game of acquisitions until 2009, but its most memorable buy in recent memory is its $3 billion purchase of Beats in 2014.

They are not exceptions. Companies in the U.S. and beyond have been getting bigger and bigger. According to data compiled by FiveThirtyEight, not only are more companies getting larger, but the largest are growing at a faster pace. M&A is part of the reason: 2015 was a record year for mergers and acquisitions, and 2016 is expected to be similar, as cash-rich companies often see dealmaking as the best way to spend in the current economic environment. But the big-company trend has been going on for longer than that. According to The Economist, huge firms have been steadily getting huger for decades. Worryingly, though, recent studies have found that this may come with wider costs: The gigantic companies of today are not producing as many American jobs as the giant companies before them.