The Bigger They Are, The Harder Tech Titans Could Fall

Intel, Starbucks, and Estée Lauder have something in common – and it’s not the fact that their products are indispensable to New York’s most glam and caffeinated workers. Once market darlings, all of their shares have plunged between 20 and 60% this year, proving that even the brightest stars can fade.

Many past champions have suffered the same blow to their egos – the investing equivalent of A Star Is Born, you might say. After all, history shows that no company stays on top forever, so it's essential that retail investors grasp the life cycle of these market leaders and avoid putting too much weight in their portfolios. That’s where Bridgewater comes in: it’s done the research and I’ve pulled out the key takeaways, zeroing in on how today’s tech giants might – or might not – hold onto their top spots.

Why do market leaders often end up falling behind?

The same forces that elevate a company to the top of a stock market – think technological breakthroughs or market disruption – can also lead to their downfall. All it takes is a sharper competitor, a change in consumer habits, or a new regulation to change a company’s fortunes.

Take IBM, for example. Once the king of computing, it missed the shift toward personal computers and software, giving newer players like Microsoft and Apple the chance to steal a march.

The chart below tracks the rise and fall of the biggest companies (by market capitalization) over the last 120 years. Each gray line represents the market cap share of the champions at the start of each decade. Check out the blue line, representing this year’s cohort. You’ll see that they’ve reached the top in a much shorter span of time than the average path, no doubt thanks to rapid tech advancements and easier access to capital. But that also means their fall could be just as fast and steep, compared to the slower decline of past champions.

The takeaway for investors is clear: market dominance is never permanent. Companies that fail to adapt are at risk of losing their leadership, and retail investors should be wary of putting too much faith in any single company or holding on to current winners too long, no matter how invincible they seem today.

Can today’s tech giants hold on to their lead?

Tech powerhouses like Apple, Google, and Microsoft are the reigning market champions. They thrive on moats – that is, their abilities to maintain a competitive advantage – like economies of scale, network effects, and their vast stores of user data, allowing them to grow revenue almost on autopilot. Google’s domination of search engines and Microsoft’s stronghold on cloud services have made it tough for competitors to break through.

However, Apple’s a living example of how fortunes can change: iPhone sales have hit a plateau, pushing the company to explore services like streaming and payments. Meanwhile, Google is facing pressure from platforms like TikTok, which are reshaping how younger users search and engage with content. Even Microsoft is under threat, with cloud competitors like Amazon Web Services and Google Cloud nipping at its heels.

But challenges don’t always come from competitors. Antitrust regulators, especially in the US and Europe, are starting to question the market power of these giants. Google’s already been slapped with antitrust lawsuits related to its dominance in search and advertising, and Apple’s facing heat for App Store policies that critics say stifle competition.

Then there’s the wild card: the speed of technological change. Sure, today’s giants lead in AI and cloud computing, but they aren’t the only players in the game. The tech landscape is unpredictable, and just as Google took down Yahoo and Meta (then Facebook) crushed MySpace, new disruptors could be waiting in the wings.

What does this mean for you?

Market-cap-weighted and index funds (including exchange-traded funds (ETF)) have funnelled a ton of capital into a few dominant players in recent years. In the S&P 500, for instance, tech giants like Apple, Amazon, and Microsoft make up a hefty chunk of the index. So simply by holding an index fund, you’ll be more exposed to these companies than you realize.

The key to managing this concentration risk is striking the right balance between existing and potential winners. Investing in market champions like Apple or Google offers some stability, but up-and-coming innovators often bring the biggest growth potential. Finding the sweet spot between these two can help you reduce risk and boost returns.

Here’s how to balance risk in your portfolio:

Anchor your portfolio with established champions: Established companies (often referred to as “blue-chip”) with strong track records, predictable earnings, and major market shares can provide stability. These companies are less likely to experience wild price swings in the medium term, making them safer bets in times of market volatility.

Add growth potential with emerging innovators: Younger, smaller companies in fast-growing industries like AI, biotech, or renewable energy offer the potential for substantial capital appreciation. However, these companies come with higher risk because they’re often yet to prove their ability to make sustainable profit. Still, including a *small* allocation to such companies can increase your portfolio’s overall growth potential without significantly increasing risk.

Use dollar-cost averaging: If you’re concerned about market volatility, the dollar-cost averaging strategy can help you gradually increase your exposure to both market champions and emerging innovators. By investing a fixed amount of money at regular intervals, you spread out your risk over time, reducing the impact of short-term market fluctuations.

Rebalance periodically: You may find that your portfolio becomes overweight in certain sectors or stocks over time, as the value of individual investments fluctuates. To maintain the right balance between high-growth innovators and stable champions, rebalance your portfolio regularly.