In this article, we’ll cover: 

• What market capitalization is
• What market cap tells you
• The importance of market cap
• Calculating market cap

What is market capitalization in simple terms?

Market capitalization, often abbreviated as “market cap,” is one of the key metrics used to evaluate publicly traded companies. In simple terms, it represents the total value of a company’s outstanding shares of stock. 

This metric provides investors with an instant snapshot of the company’s scale in the market. Think of the term market cap as a shorthand way of referring to the total market value of a company.

To calculate market cap, you need two essential components: the company’s current stock price and the total number of outstanding shares. By multiplying these two figures together, you can determine the market cap. For example, if a company has a stock price of $50 and there are one million shares outstanding, the market cap would be $50 million.

What does market cap tell you?

Market cap holds a wealth of information for investors and analysts. Primarily, it gives you insights into the company’s overall size within the market. Companies with larger market caps are generally more established and have a greater market presence. 

Conversely, those with smaller market caps are typically younger, smaller, or niche-focused. Market cap helps classify companies into different categories:

• Large-cap: These are companies with a high market cap, often exceeding billions of dollars. They are generally well-established, stable, and less prone to extreme volatility. Examples include industry giants like Apple, Microsoft, and Amazon.
• Mid-cap: These companies are typically in between large-cap and small-cap companies in terms of market cap. They offer a balance between growth potential and stability.
• Small-cap: Small-cap companies have a lower market cap, making them potentially more volatile but with greater growth opportunities. These companies are often in their early stages of development and can include startups and emerging businesses.

Market capitalization is a huge factor to consider when evaluating an investment. Since it reflects a company’s size, stability, and growth potential, it can provide useful information about the viability of the investment. 

Additionally, several indexes are based solely on market cap, which allows investors to compare companies across the same industry. Of course, it’s important to still look at other factors, such as earnings reports and financial statements, when evaluating an investment opportunity. 

It’s also important to remember that a company’s market cap can change over time. As a result, investors should check the current market cap of a company before investing. This can give them an idea of whether the stock is undervalued or overvalued and provide valuable insight into future performance. 

Is a higher market cap better?

The notion that a higher market cap is always better is a common misconception. While a larger market cap can signify stability, it doesn’t necessarily equate to better returns or investment suitability. Each investor’s goals and risk tolerance differ, so what might be suitable for one might not be the same for another.

Investors seeking consistent, reliable returns might lean towards large-cap stocks, as these companies are often well-established and generate stable earnings. On the other hand, investors with a higher risk appetite might explore small-cap stocks, as they have the potential for significant growth but come with increased volatility.

Why is market cap so important?

Incorporating market cap insights into your investment decisions enhances your portfolio’s resilience and equips you with a basic understanding of companies’ relative worth and positioning within the market. Market capitalization is an investor’s best friend when it comes to shaping investment decisions. This concept is invaluable to investors for a number of reasons, including:

Building a diverse portfolio

Market cap serves as a compass for effective portfolio diversification, and by investing across companies of varied sizes, investors can harmonize risk and reward. A well-diversified portfolio strikes a balance through a blend of large-cap, mid-cap, and small-cap stocks.

Helping investors assess risk

Understanding market capitalization is pivotal in evaluating investment risk, offering valuable insights for prudent decision-making. As market cap increases, a company’s stability often elevates, thereby correlating with diminished risk when juxtaposed with smaller enterprises. Acknowledging a company’s market cap empowers investors to tailor their investment selections to harmonize with their unique risk appetite.

This principle holds particular relevance when considering index funds—an investment avenue that allows investors to diversify their holdings across a broad range of companies, mirroring the composition of benchmark indices like the S&P 500. Index funds allocate their investments based on market cap proportions, meaning that larger companies exert a greater influence on the fund’s performance.

Performance comparison

Market cap empowers investors to engage in performance scrutiny among companies operating within the same sector or industry. For instance, comparing the market caps and financials of two rival tech firms can unveil insights into their relative market standings and growth potentials.

Market cap fluctuations can be a harbinger of broader market trends. Consider a scenario where multiple small-cap entities in a specific sector are experiencing rapid growth; this could signal an emerging trend of innovation or burgeoning technologies within that sector.

Tailored investment strategies

The spectrum of market cap fosters diverse investment strategies. Investors tailor their approaches based on market cap distinctions. Those seeking growth might gravitate towards small-cap stocks, value-oriented investors may explore mid-cap options, and income-focused investors could opt for dividend-paying large-cap stocks. This understanding is particularly crucial when considering benchmark indices like the Dow Jones Industrial Average (DJIA) and the S&P 500.

The DJIA, also known as “the Dow,” is an iconic stock market index. It represents 30 of the largest publicly traded companies in the U.S., showcasing the performance of these esteemed blue-chip stocks. This unique price-weighted index gives more weight to higher-priced stocks, making its movement all the more captivating. While the DJIA provides valuable insights into market health and trends, its limited scope stems from its relatively small number of components. 

The S&P 500 is a broader and more diversified benchmark index, encompassing 500 large-cap U.S. companies across various sectors. Unlike the DJIA, the S&P 500 is market capitalization-weighted, giving more weight to companies with larger market caps. This index provides a comprehensive investment snapshot of the U.S. stock market’s performance and is often considered a representative gauge of the overall market’s health.

When analyzing market cap in the context of these benchmark indices, investors gain a broader understanding of how companies of varying sizes contribute to market trends. 

Calculating market cap: The math behind company valuation

Now that we have a solid understanding of what market cap is and why it’s essential, let’s dive into the mathematics behind calculating this crucial metric. Market capitalization is a straightforward formula that involves two key elements: the company’s stock price and the total number of outstanding shares.

Note:

• Stock price: The stock price, often referred to as the market price or share price, represents the current trading price of one share of the company’s stock. This value is readily available on financial news platforms, stock exchange websites, and various financial data sources.
• Outstanding shares: Outstanding shares represent the total number of a company’s stock that has been issued and is currently held by investors, including institutional and individual shareholders. This figure can vary due to various corporate actions such as stock buybacks, new stock issuances, and other factors.

To illustrate the calculation, let’s consider a hypothetical company, ABC Inc.:

1. Stock Price: $75
2. Outstanding Shares: 10 million
3. Market Cap = $75 × 10,000,000 = $750,000,000

In this scenario, ABC Inc.’s market capitalization is $750 million.

Understanding the calculated market cap is crucial for investors as it places the company’s value in perspective within the broader market landscape. It helps categorize the company into the classifications we discussed earlier—large-cap, mid-cap, or small-cap. Investors can also compare this value with other companies in the same sector to assess relative sizes and growth potential and use these metrics as indicators for finding undervalued stocks.

Limitations of market cap

While market cap is a valuable metric, it’s important to recognize its limitations. It doesn’t provide a comprehensive view of a company’s financial health, growth prospects, or other qualitative factors. 

For instance, two companies with the same market cap might have vastly different revenue, profit margins, and debt levels. Thus, it’s always advisable to complement market cap analysis with a thorough evaluation of a company’s financial statements, industry position, competitive landscape, and other relevant factors before making investment decisions.

Market cap is a dynamic metric that can change rapidly due to stock price fluctuations and changes in the number of outstanding shares. Companies often experience shifts in market cap following significant announcements, earnings reports, and market sentiment changes. Investors should stay vigilant and regularly monitor the market cap of their investments to stay informed about shifts in valuation.

Understanding market cap is crucial for making informed investment decisions. It serves as a compass, guiding investors through the vast market landscape. Market cap not only quantifies a company’s value but also offers insights into its potential risks and rewards. Remember that a higher market cap doesn’t always guarantee success, as each investment should align with your unique financial goals and risk tolerance. 

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But AI technology is far from new, and chatbots are just one application of this advanced tech. Indeed, nearly every industry has been impacted by AI, from healthcare to freight, and this growth shows no signs of slowing down. Prominent tech industry experts like Bill Gates predict the growing influence of AI technology, and current projections estimate that the global AI market is on track to total half a trillion dollars by the end of the decade. Naturally, this growth is attracting attention from investors. If you’re interested in bringing AI companies into your portfolio, you may want to get to know the biggest players in the field. 

In this article, we’ll cover:

• Top AI companies
• What to consider when researching AI companies

Top AI companies 

Since AI impacts so many industries, the missions of the top AI companies are incredibly diverse, as are the ways they apply this technology, running the gamut from autonomous driving to cybersecurity to application development and more. AI companies also range widely in terms of longevity, with the list of largest companies including long-term tech sector players and newer enterprises alike. These 15 companies represent the largest by market cap in the AI space as of summer 2023. 

Largest AI companies by market cap as of June 2023:

• Microsoft
• Alphabet
• NVIDIA
• Tesla
• IBM
• Mobileye
• Palantir
• Dynatrace
• Uipath
• C3 AI
• SentinelOne
• Upstart
• Bayonet AI
• Darktrace
• Aurora Innovation

1. Microsoft (MSFT)

Microsoft has remained a leader in end-user computer technology for nearly four decades and currently stands as the second largest company in the world. Its popular Windows desktop operating system claims approximately 74% of market share worldwide. With a $10 billion investment in OpenAi in January 2023 and subsequent integration of its ChatGPT generative AI chatbot and Dall-E image generation into the Bing search engine and Edge web browsing software, Microsoft has claimed its position as the world’s leading artificial intelligence company. 

• Market cap: $2.46 trillion
• Headquarters: Redmond, WA, USA
• Founded: 1975
• AI focus: Web search, image generation

2. Alphabet (GOOG)

Google’s suite of products extends to a large number of categories in the tech industry, with products that touch on everything from education to advertising and fitness to streaming video. 25 years after the company’s founding, its flagship product remains its eponymous search engine, which reportedly accounts for more than 90% of worldwide searches. Google and its parent company Alphabet expanded into AI and deep learning with the formation of its Google AI division in 2017. In February 2023, the company announced Bard, an AI chatbot designed to compete with Microsoft’s integration of ChatGPT into its Bing search engine, though the release was slightly marred by reported internal disapproval of the product’s rollout. At Google I/O in May 2023, their annual developer conference, AI took center stage with the reveal of Search Generative Experience, AI editing via Google Photos, and more.

• Market cap: $1.57 trillion
• Headquarters: Mountain View, CA, USA
• Founded: 1998
• AI focus: Web search

3. NVIDIA (NVDA)

Rounding out the top three AI companies, NVIDIA manufactures graphics processing units (GPUs), whose computing power has been foundational for several generative AI technologies. The company commands 82% of the GPU market and has had a hand in major AI technology advancements, including ChatGPT, which was trained using 10,000 NVIDIA GPUs. The NVIDIA NeMO LLM’s status as one of the most advanced large language models, along with a new partnership with Microsoft, further cement its place among prominent AI companies.

• Market cap: $975.20 billion
• Headquarters: Santa Clara, CA, USA
• Founded: 1993
• AI focus: GPU manufacturing

4. Tesla (TSLA)

Twenty years after Tesla launched with a vision for reimagining the automotive industry through technology, the company’s Model 3 vehicle stands as the all-time bestselling plug-in electric car. Tesla has also expanded far beyond the automotive industry, becoming one of the largest global suppliers of battery energy storage systems and solar panels. Among its innovations are self-driving cars and bipedal robotic units, both of which utilize AI technology to sense conditions and events to pilot themselves with minimal human intervention. 

• Market cap: $791.83 billion
• Headquarters: Austin, TX, USA
• Founded: 2003
• AI focus: Vehicular AI, robotics, clean energy

5. IBM (IBM)

While artificial intelligence may seem new to many people, one of the “big 5” AI companies has been innovating in this realm for decades. In the 110 years since its founding, IBM has consistently been a cornerstone of the tech industry, producing innovations that have become an ingrained part of everyday life, including the bar code, the hard disk drive, and the personal computer itself. Its Watson question-answering platform, initially developed from 2004-2011, could be seen as the first AI language model technology to attain global notoriety, as a result of its 2011 victory on the quiz show Jeopardy! Since then, its deep learning capabilities have been applied to a wide range of industries, including healthcare, cuisine, hospitality, water conservation, and more. In 2023, Watson earned IBM its second consecutive Gartner® Magic Quadrant for Enterprise Conversational AI Platforms.

• Market cap: $123.87 billion
• Headquarters: Armonk, NY, USA
• Founded: 1911
• AI focus: Conversational AI

6. Mobileye (MBLY)

Mobileye is another AI company focused on autonomous driving and advanced driver assistance systems. Through high-profile partnerships with Ford and Volkswagen, in addition to 25 other automobile manufacturers, the company’s technology is employed in vehicles across the world. Its products include lane assist, automatic emergency braking, and forward collision, all of which aim to increase the ease and safety of driving. Since its acquisition by Intel in 2017, the company has grown significantly and continued to expand its innovation in self-driving AI technology.  

• Market cap: $32.50 billion
• Headquarters: Jerusalem, Israel
• Founded: 1999
• AI focus: Vehicular AI

7. Palantir (PLTR)

Palantir Technologies specializes in big data analytics through three major software platforms for the public and private sectors. Each of these uses artificial intelligence to access information and strengthen correlations between data points. Palantir Gotham is used by the United States Intelligence Community to aggregate data for national security purposes, including predictive policing systems. Palantir Metropolis learns and uncovers relationships between data points in private and public databases and is primarily used in the finance industry, perhaps most famously by JP Morgan Chase to monitor employees. Palantir Foundry is a flexible system that integrates data and can make decisions using generative processes. The company reported its first-ever profitable quarter in February 2023.

• Market cap: $32.41 billion
• Headquarters: Denver, CO, USA
• Founded: 2003
• AI focus: Data aggregation

8. Dynatrace (DT)

The Dynatrace Software Intelligence Platform, driven by the company’s proprietary AI technology, Davis, is used in products by large companies such as Amazon, Google and Microsoft. The platform monitors software and uses artificial intelligence to detect issues, discover anomalies, and monitor performance. When problems are detected, the software is capable of generating and implementing its own solutions without human intervention. Their February 2023 announcement of the platform’s new ability to predict software issues before they occur is seen as a competitive differentiator by some industry analysts.

• Market cap: $15.01 billion
• Headquarters: Waltham, MA, USA
• Founded: 2005
• AI focus: Observability, application security, cloud computing

9. UiPath (PATH)

The defining function of UiPath’s robotic process automation software offerings is the automation of routine business tasks through AI and machine learning. Over the 18 years since the company’s founding, however, its capabilities have expanded significantly, and the software is now capable of executing customer relationship management (CRM) functions and more on a massive scale. UiPath’s financial picture has followed suit, claiming one of the largest US software IPOs in history. With its July 2022 acquisition of Re:infer, the company has added natural language processing to its artificial intelligence arsenal. 

• Market cap: $9.92 billion
• Headquarters: New York, NY, USA
• Founded: 2005
• AI focus: Process automation

10. C3 AI (AI)

The aptly named C3 AI’s software-as-a-service (SaaS) platform utilizes AI’s ability to interpret and translate ideas to provide innovative solutions for businesses. Its machine learning algorithm allows users to envision and create software applications even without expertise in data analytics. Its software has been utilized by major companies such as Shell and Koch in business applications in energy, chemicals, investments and more. The U.S. Air Force has also employed the platform to develop new technologies and improve upon existing ones.

• Market cap: $4.28 billion
• Headquarters: Redwood City, CA, USA
• Founded: 2009
• AI focus: Application development

11. SentinelOne (S)

SentinelOne became an industry leader by leveraging the power of AI for its next-gen cybersecurity software. The company’s AI technology detects abnormal use in endpoint devices and shuts down processes before viruses or bad actors can spread across networks. Its roster of clients includes high-profile brands such as Samsung, Aston Martin, Politico, EA, and Sysco, embedding its products in a number of industries and sectors. The ten year-old company continues to grow its market cap, recently reporting a 92% increase in revenue in the first quarter of 2023.

• Market cap: $4.24 billion
• Headquarters: Mountain View, CA, USA
• Founded: 2013
• AI focus: Cybersecurity

12. Upstart (UPST)

Founded by another ex-Googler, Upstart is a company that leverages artificial intelligence (AI) and machine learning to provide lending and credit services. Using advanced algorithms and data analytics to assess creditworthiness, their AI lending firm enables faster and more accurate loan approvals for individuals and small businesses.

• Market cap: $2.78 billion
• Headquarters: San Mateo, CA, USA
• Founded: 2012
• AI focus: Dynamic pricing, revenue optimization

13. Bayanat AI (BAYANAT.AI)

Born out of the commercialization of the United Arab Emirates’ military survey department, Bayanat AI’s technology now serves enterprises around the world with informed solutions for geospatial business needs. The company’s core offerings include AI-powered data analytics, computer vision, natural language processing, and predictive modeling. Now under the umbrella of the G42 investment group, Bayanat’s products are used widely in the automotive, academic, and tech industries.

• Market cap: $2.82 billion
• Headquarters: Abu Dhabi, UAE
• Founded: 2008
• AI focus: Geospatial processing

14. Darktrace (DARK.L)

The Darktrace AI platform learns to detect normal behavior across a network and its users, forming a profile of typical use. When it detects behavior that diverges from this profile, the software intelligently determines whether a threat is present and calculates the most efficient way to attack and dismantle it. The company recently launched its product as a viable solution to new email security threats posed by generative AI technologies like ChatGPT, arguing that existing tools are not strong enough to address the concerns raised by such advanced chatbots.

• Market cap: $2.75 billion
• Headquarters: Cambridge, UK; London, UK; San Francisco, CA, USA; Singapore
• Founded: 2013
• AI focus: Cybersecurity

15. Aurora Innovation (AUR)

Founded by executives from Google, Tesla, and Uber, Aurora Innovation is another of the top AI companies developing self-driving vehicle solutions, envisioning a fleet of autonomous vehicles to be used in applications including freight and ridesharing. Fiat Chrysler, Toyota, and Volvo, are just a few of the manufacturers using their Aurora Driver technology. In 2022, the company announced its new Aurora Beacon platform, which will assist users with maximizing uptime and other optimization concerns for these fleets, as well as an expanded pilot with FedEx to bring self-driving technology to the shipping industry. In April 2023, the company revealed that it plans to begin a driverless truck route connecting Dallas and Houston by 2024.

• Market cap: $2.64 billion
• Headquarters: Pittsburgh, PA, USA
• Founded: 2017
• AI focus: Autonomous driving

What to consider when researching AI stocks

If you’re enticed by this quick-moving aspect of the tech industry, you may be wondering if investing in the top AI companies is the right move for your portfolio. Before you make the leap, make sure to do your research. Like any competitive market, there are a number of factors you might consider before investing.

The company’s financial statements should give you a window into its revenue, profits, debt, and cash flow for a better understanding of its finances. Another factor you may consider is the company’s management: what previous organizations have company leaders worked for? What goals have they set? Have they shown success in achieving them? Investors often also investigate the potential risks associated with a stock, such as the company’s regulatory risks, legal risks, and macroeconomic risks, as well as the volatility of its share prices over time. 

Additionally, since AI technology is rapidly evolving, it may be helpful to follow the news on a company in which you’re planning to invest, as well as the performance of stocks in the tech industry overall.

Ready to invest in the top AI companies?

There are many options for investing in the technology sector, and Stash can help you get started with shares in top AI companies, as well as an ETF focused on robotics. And with fractional shares, you can begin investing with any amount. 

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