In business and investing, size matters. When looking at the most valuable companies in the U.S. stock market as measured by market capitalization, the top five are technology names. Specifically, Apple (AAPL 0.07%), Alphabet (GOOG -1.16%) (GOOGL -1.11%), Microsoft (MSFT -0.51%), Amazon.com (AMZN -0.66%), and Facebook (META -1.65%) are the most valuable listed companies in the world.

The tech sector is fertile ground for innovative growth businesses, and companies with solid competitive strengths in a growing market can create tremendous value for investors in a relatively short time.

The rise of the tech giants

That the five most valuable companies in the stock market are technology businesses says a lot about the kind of opportunities available to investors in top-quality companies operating in growing industries. Considering theyre young companies, these businesses have created enormous value for shareholders over a relatively short period. 

Close-up of a colorfully lit computer chip.

Image source: Getty Images.

Alphabet's Google business was created in 1998, and it's now the second most valuable company in the world behind Apple, created in 1976. Even more impressive, Facebook is only 12 years old, having been founded in 2004. That Alphabet and Facebook are more valuable than old names such as Johnson & Johnson (JNJ 0.26%) and Coca-Cola (KO -1.13%) -- founded in 1886 and 1892 -- respectively, is downright amazing.

Company Market Capitalization Year Founded
Apple $625.9 billion 1976
Alphabet $553.9 billion 1998
Microsoft  $468.7 billion 1975
Amazon.com $380.2 billion 1994
Facebook $379.8 billion 2004
Johnson & Johnson $315.7 billion 1886
Coca-Cola $182.2 billion 1892

Data sources: Yahoo! Finance, corporate websites.

Market leaders in industries such as pharmaceuticals and soft drinks can be remarkably profitable investments, and names such as Johnson & Johnson and Coca-Cola have, in fact, delivered attractive returns for investors over the years. Nevertheless, the tech sector is one of a kind when it comes to opportunities for innovation and value creation.

Alphabet and Facebook are the top dogs in online advertising, an industry benefiting from explosive growth. Similarly, Apple has revolutionized the mobile computing industry with products such as the iPhone, Microsoft is a world leader in productivity software and operating systems, while Amazon is the industry king of online retail. Demand in these areas has grown exponentially over the past several years, and that demand has been enormously beneficial for investors the five technology juggernauts.

Innovation comes in all shapes and sizes, and many companies in traditional sectors of the economy can benefit customers and shareholders with smart innovations. Nevertheless, opportunities for growth are especially attractive for companies operating at the forefront of technological innovation, and the biggest companies in the world are positioned in the right industries.

Competitive strengths

It all starts with successful innovation and growth opportunities, but it doesn't end there. Success attracts competition, and winning technologies tend to be replicated by other industry players over time. For this reason, the best tech companies need to have enough competitive strengths to keep the competition at bay and consistently translate innovative power into growing earnings and cash flows for investors.

Apple is the most valuable brand in the world, and the company has a unique ecosystem of services and applications that generates unparalleled customer loyalty. When considering brand differentiation, customer experience, and cultural footprint, Apple is one of a kind. 

Alphabet's Google brand is so powerful that it's even considered a synonym for online search, as many consumers use the expression "googling" for information, as opposed to just "online searching." The company owns seven services and applications with over 1 billion users each: Google Search, Android, YouTube, Gmail, Maps, Chrome, and Google Play. No company comes close to Alphabet in terms of scale and popularity in the online world.

Icons indicating online data tracking superimposed over a businessman's hand touching a laptop keyboard.

Image source: Getty Images.

Microsoft is facing considerable challenges because of emerging technology trends in the computing industry, such as the rise of mobile computing, but the company is one of the most trusted and respected brands among its core clientele, especially in the corporate sector. Relying on Microsoft's software and services is a safe bet, and corporate customers are notoriously risk-averse when making purchase decisions in this area.

Amazon has built tremendous scale over the years, allowing the company to obtain conveniently low prices from suppliers and spread fixed costs across a massive amount of items. Cost competitiveness is a key success factor in discount retail, and Amazon knows how to leverage its strengths to delight its customers with aggressively low prices.

Size is of the utmost importance in the social-media industry, since users attract each other to the most relevant platforms. As of the end the second quarter of 2016, Facebook had 1.71 billion monthly active users, growing by 15% year over year. If everyone else is on Facebook, then you need to be on the platform, too, and this dynamic creates a self-sustaining growth cycle for the company.

Apple, Alphabet, Microsoft, Amazon, and Facebook are different businesses with their own weaknesses and strengths. However, the five tech giants operate in attractive markets, and their profits are protected by rock-solid competitive strengths. This is arguably the main reason they're the most valuable companies in the U.S. stock market.