Mega Cap Definition
Mega cap refers to a publicly-listed company with a market capitalization value of more than 200 billion. Typically, it is a reputed market leader with a stable, well-established business like Amazon, Apple, Alphabet, Meta, Nvidia, and Microsoft.
Mega cap stocks are generally high priced but are safer to invest with a more predictable rate of return. With consistent good performance and lower risk, they usually attract long-term investors. They are also ideal for diversifying a portfolio comprising of high-risk stocks.
Table of contents
- Mega cap is a term used for a publicly-traded company with a market capitalization of over $200 billion.
- Famous mega cap firms include Apple, Amazon, Microsoft, Meta, Alphabet, & Nvidia.
- Investment in mega cap firms ensures guaranteed profits with low risk even in a volatile market.
- There are two approaches for mega cap investment, i.e., individual mega cap investment for professionals and mutual funds or ETFs for beginners.
Mega Cap Explained
Mega cap is a company with the largest market capitalizationMarket CapitalizationMarket capitalization is the market value of a company’s outstanding shares. It is computed as the product of the total number of outstanding shares and the price of each share. value. Market capitalization tells a company’s value or worth in the market. Listed companies are usually classified according to market capitalization.
Most businesses are fall in small cap, mid cap, or large capLarge CapLarge-cap stocks refer to stocks of large companies with value, also known as the market capitalization of 10 billion dollars or more, and these stocks are less risky than others and are stable. They also pay a good dividend and return, and it is the safest option to invest. categories. Nevertheless, some at the highest end of the spectrum are referred to as mega caps. They are powerful enterprises and kingpins with numerous businesses possessing a stronghold across the market. They have proved themselves over time, exhibiting a stable growth rate.
With a solid position and ample funds, they enjoy more market security. Consequently, their stocks are better placed to confront market unpredictability without experiencing much volatility. Negligible price volatility makes them less risky. Also, they are usually held by institutional investorsInstitutional InvestorsInstitutional investors are entities that pool money from a variety of investors and individuals to create a large sum that is then handed to investment managers who invest it in a variety of assets, shares, and securities. Banks, NBFCs, mutual funds, pension funds, and hedge funds are all examples. for years and hence enjoy price stability.
From the investor’s perspective, mega stocks are easy to research as the companies have been functioning for decades. Also, since the businesses are already mature and require fewer reserves for the future, profits are usually generously distributed as dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity..
Besides good dividend income, minimal risk, and general price stability, they also exhibit immense liquidityLiquidityLiquidity is the ease of converting assets or securities into cash.. This allows major investors like institutional shareholders, millionaires, and hedge fundsHedge FundsA hedge fund is an aggressively invested portfolio made through pooling of various investors and institutional investor’s fund. It supports various assets providing high returns in exchange for higher risk through multiple risk management and hedging techniques. to trade large positions effortlessly.
On the flip side, mega stocks also come with their share of disadvantages. They have limited growth prospects or share price increments as they have already reached their maximum potential.
Investors can invest in individual mega stocks or diversify their investment portfolios with distinct businesses through mutual fundsMutual FundsA mutual fund is a professionally managed investment product in which a pool of money from a group of investors is invested across assets such as equities, bonds, etc or exchange-traded funds (ETFs)Exchange-traded Funds (ETFs)An exchange-traded fund (ETF) is a security that contains many types of securities such as bonds, stocks, commodities, and so on, and that trades on the exchange like a stock, with the price fluctuating many times throughout the day when the exchange-traded fund is bought and sold on the exchange. having mega stocks. Nevertheless, investing in mega stocks is the best way to share the earningsEarningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments. of the largest companies across the marketplace.
As lucrative as it seems, mega stock investment is not the right choice for everyone. Before investing in mega stocks, traders must contemplate their time range, risk tolerance, and financial objectives.
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A Forbes article lists the six top mega-cap tech stocks with complete market predominance. It encompasses Amazon, Apple, Facebook, Google/Alphabet, Microsoft, and Nvidia. Their overall market capitalization is worth $9.5 trillion, equivalent to almost a quarter of the S&P 500 index and 45% of US GDPGDPGDP or Gross Domestic Product refers to the monetary measurement of the overall market value of the final output produced within a country over a period..
All mega stocks displayed consistent growth, rising by 29% since the year beginning. While amazon registered massive income even during the COVID-19 pandemic, Apple had the historically biggest 2021 Q2 profit with $21.7 billion, mostly due to the 5G iPhone updates. Likewise, the advertising rates on Facebook surged to 47% YoY, raking in $29 billion in revenue.
Google recorded the highest-ever quarterly profit and returns, thanks to record online ad sales (84% surge in YouTube ad sales and 69% rise in ads related to Google search). Likewise, Microsoft’s total revenue rose to a staggering $46 billion, reporting 21% growth. Finally, Nvidia’s total revenue, according to the article, is expected to increase by 65% to $6.3 billion.
According to the live Reuters news report, an increment in the mega caps, including Alphabet and Microsoft, caused a major surge in US stock indexes. Nasdaq and S&P 500 rose 1% since the last trading session, with real estate and materials sectors being the major gainers in S&P.
Mega Cap vs Large Cap
As discussed, market capitalization categorizes companies into small, mid, large, and mega caps. The key difference between mega and large companies lies in their market capitalization value. While mega companies have a market capitalization of $200 billion or more, large companies hover in the range of $10-$200 billion.
Both large and mega caps are big companies, but mega caps are the biggest of them all. They are dominant players in their field, flaunting exorbitant stock prices. Typically, hedge funds, mutual funds, endowments, and pensions invest in them.
|Particulars||Mega Cap||Large Cap|
|Market capitalization||Over $200 billion||$10 billion-$200 billion|
|Price stability||Relatively greater||Relatively lesser|
|Stock prices||Usually with the highest price||Higher than small & mid cap but lesser than the mega cap|
|Growth opportunities||More growth opportunities||Fewer growth opportunities|
|Citigroup||Meta (formerly called Facebook)|
Frequently Ask Questions (FAQs)
A – Mega ETF refers to the investment in stocks of firms with a typical market capitalization value of more than $200 billion. It offers more tax efficiency, liquidity, and flexibility to investors.
A – Large cap has a market capitalization worth $10 billion-$200 billion, while mega usually has over $200 billion. Though similar in many aspects, mega stocks provide more dividend, liquidity, and market stability than large stocks.
A – Yes, Google is considered a mega cap with a market cap is 1.781 trillion as of March 2022. It is a pioneer in the Internet industry, earning astounding revenue and profit. Its main source of revenue is advertising through YouTube and other search-related sites and cloud services.
A – Mega stock investment is possible via two methods, i.e., individual investment or investing through mutual funds or ETFs. Individual investment refers to putting the money in specific mega firms. While mutual funds or ETFs permit exposure to many mega stock firms at once.
This has been a guide to Mega cap & its Definition. Here we explain mega caps and their stocks along with examples and compare them with large caps. You can learn more from the following articles –