In 1984, the three largest U.S. companies were Exxon, General Motors, and Mobil. Today, the combined ExxonMobil ranks 14th on the market cap list, while General Motors has slipped all the way to No. 183.
The lesson: It's hard to remain the darling of Wall Street. Companies once considered juggernauts can lose their way or simply be supplanted by fast-growing newcomers. There are, after all, always upstarts looking to climb the ranks, often powered by innovative products and guided by visionary leaders.
With that in mind, let's compare two companies -- one rising, the other perhaps slipping -- and see if Meta Platforms (META -2.57%) could surpass Apple's market cap by 2030.
Image source: Getty Images.
Where things stand right now
As of this writing, Apple has a market cap of $2.6 trillion, making it America's second-largest company, behind only Microsoft. Meta Platforms' market cap is roughly half that -- $1.3 trillion.
So, at first blush, it appears unlikely that Meta will surpass Apple anytime soon. However, if you dig deeper, there are signs that a shift is underway.
Follow the cash
Over the long run, free cash flow per share is one of the most important financial metrics for any company. Amazon founder Jeff Bezos once said it was his "ultimate financial measure."
The reason is that free cash flow per share represents how much shareholder value a company creates. With ample cash flow, managers can, directly or indirectly, return value to shareholders in several ways:
- Paying dividends
- Making acquisitions
- Reducing debt
- Buying back shares
As a result, free cash flow per share and stock prices are highly correlated, particularly over the long term.
How Meta and Apple stack up
So, how do Meta and Apple compare by that metric? Here are two charts showing their free cash flow per share and stock price over the last 10 years.
In a nutshell, Apple's stock has been overperforming -- that is, running ahead of its free cash flow per share growth. Meanwhile, Meta has been underperforming -- lagging its free cash flow per share growth.
What's more, if you directly compare their rates of growth, Meta has grown its free cash flow per share by more than 1,200% over the last 10 years, while Apple has only grown it by 252%.
What this all means is that Apple's stock appears overvalued when compared to Meta's on this basis, and that, over time, Meta's stock price should increase to overlap with its free cash flow. Meanwhile, Apple's stock should, over time, fall to overlap with its free cash flow.
There are a few caveats to this theory. Obviously, Apple's free cash flow per share can increase. New services and products could generate more revenue, or the company could cut costs to increase cash flow. Similarly, Meta's free cash flow could decrease if revenue growth slows or costs rise.
Yet, if the trends hold, it's clear: Meta has a chance of surpassing Apple's market cap in another 10 years -- if not sooner.
Consider this: Over the last 12 months alone, Meta's market cap has risen by more than 140%, from $532 billion to $1.3 trillion. Apple's is virtually unchanged.
AAPL Market Cap data by YCharts.
In other words, the shift is already underway. And with free cash flow per share playing its role behind the scenes, it may not be that long before Meta surpasses Apple.
