Fact checked by Suzanne Kvilhaug
In the mid-2020s, three companies—NVIDIA Corp. (NVDA), Apple Inc. (AAPL), and Microsoft Corporation (MSFT)—have in recent years traded the title of the world’s most valuable company. Each has a market capitalization (“market cap”) of over $3 trillion, a figure that rivals and often tops the entire economic output of the United Kingdom, the world’s sixth-largest economy.
These figures highlight the salience of market capitalization, the total value of a company’s stock. Market cap results from multiplying the number of a company’s outstanding shares by its stock price. For example, if a stock trades at $10 per share with 1 million shares, its market cap would be $10 million.
Just as we categorize retail stores in sizes from small mom-and-pop storefronts to the largest multinational chains, Wall Street uses market cap to classify companies—from the smallest nano-cap firms working on their first breakthrough product or about to drop out of the market altogether, all the way up to mega-caps like NVIDIA. Below, we explain their differences and why they’re important when investing.
Key Takeaways
- Market capitalization is the total dollar value of a company’s outstanding shares at the present market price.
- Companies are grouped by market cap size – from tiny nano-cap companies worth less than $50 million to massive mega-cap giants worth over $200 billion.
- A company’s stock price alone doesn’t tell you its size—a $500 stock price could belong to a small or large company, depending on the number of shares.
- Market cap helps investors assess risk: larger-cap companies typically offer more stability but slower growth, while smaller-cap companies often have greater potential for growth but more risk.
- Major stock indexes like the S&P 500 use market cap to determine how much weight to give each company in their calculations.
Understanding Market Capitalization
Market capitalization represents the total market value of a company’s outstanding shares of stock. Calculated by multiplying the current price of one share by the number of shares available, the market cap is a quick measure of a company’s size and market value. For instance, if a company’s share price is $30 and has one million shares outstanding, its market cap would be $30 million.
The market cap changes throughout the trading day since it’s tied to the stock price. In general, a company’s share volume is pretty steady, changing only when it issues new shares (called a secondary offering), offer stock options to employees, or buy back stock. Since this part of the formula doesn’t change, it’s the stock price that largely drives changes in market cap.
Market cap plays a crucial role in how investors and analysts evaluate companies, and stocks are grouped into small-cap, mid-cap, and large-cap, etc.
Formula and Calculation
The formula for market cap is as follows:
Market Cap=Price Per Share×Shares Outstanding
For example, if ABC Corp. trades at $30 per share and has one million outstanding shares, its market capitalization would be ($30 × 1 million shares) = $30 million.
Categories for Market Capitalization
The range for the values that fit each group of market caps can vary, depending on the source. Below are the most common ways to group firms by size.
Mega Cap
Mega-cap companies have a market cap of $200 billion or higher. They are the largest publicly traded companies by market value and typically represent the leaders of a particular industry, sector, or market. In the mid-2020s, about 50 companies are in this category.
Large Cap
Companies that are considered large-cap have a market cap between $10 billion to $200 billion. Below are some of these companies and their present market cap.
Both mega and large-cap stocks are considered blue chips—relatively stable firms compared to smaller firms, which shift more easily with the market’s winds.
Mid Cap
Mid-cap stocks range from about $2 billion to $10 billion in market cap, and this group of companies is usually more volatile than the large-cap and mega-cap companies. Growth stocks represent a significant portion of the mid-caps. This means that some could grow out of the group soon. For example, Reddit Inc. (RDDT) had its initial public offering in March 2024, and by mid-year, its market cap was $9.84 billion; by year’s end, it was more than double that, putting it safely within the large-cap category.
Below are the 30 biggest mid-cap stocks, representing a wide range of sectors and industries.
Small Cap
Small-cap companies have a market cap between $300 million and about $2 billion. While the bulk of this category consists of relatively young companies that may have potential, a few established old businesses that may have lost value are included. Below are the first 50 small-cap stocks.
Micro Cap
Micro-cap companies in this group consist primarily of penny stocks, which denote companies with market capitalizations between about $50 million and about $300 million. Included here might be a lesser-known pharma company without a marketable product working on developing a new drug or a five-person company working on artificial intelligence-powered robotics technology—each might be listed with a small valuation and have limited trading.
Investments in such companies are not for the faint of heart and require due diligence.
Nano Cap
Nano caps are another high-risk, high-reward layer beyond the micro-caps and have market caps below $50 million. These companies are considered to be the riskiest, and the potential for gain varies widely—reviewing a list of such firms often offers the same feeling as trying to find something of value among the junk at a garage sale. These stocks typically trade on the Over-the-Counter Bulletin Board.
Importance of Market Capitalization
Many new investors make a common mistake: they judge a company’s size by its stock price alone. They might think a $500 stock is automatically “more expensive” or “bigger” than a $50 stock. However, this thinking can lead to costly investment errors.
Similarly, market cap tells us the whole picture by multiplying share price by total shares.
Other popular investments like mutual funds and exchange-traded funds (ETFs) are also categorized as small-cap, mid-cap, or large-cap. For funds, the terms represent the types of stocks in which the fund primarily invests.
For instance, in late 2024, NVIDIA had a stock price just under $150; its market cap was $3.6 trillion. Meanwhile, Berkshire Hathaway (BRK.A) had a much higher stock price of over $700,000 per share but a lower market cap of just over $1 trillion.
Market cap also helps investors understand risk levels. Large-cap companies typically have more resources to weather economic storms. For instance, a $100 million investment failure might barely dent a trillion-dollar company’s bottom line, while the same loss could devastate a smaller firm. However, smaller companies often have more room for dramatic growth—it’s easier to double in size when you’re worth $1 billion than $1 trillion.
Small caps tend to be the first to soar in economic recoveries but also the first to sink in downturns—they’re the canaries in the market coal mine.
Which Market Caps Perform the Best?
Different market capitalizations tend to perform differently depending on the market conditions. It’s not unlike boats at sea—large ships handle the largest waves best, while smaller boats can maneuver quickly in calmer waters but are easily swept up in the biggest waves.
Note
It took 20 years for the largest market cap company to move from $500 billion (Microsoft in 1999) to $1 trillion (Apple in 2018). It then took just two years for Apple to reach $2 trillion, and 16 months after that, it was the first company to reach a $3-trillion market cap.
Large-cap stocks, which include household names like Microsoft and Apple, are more stable during economic uncertainty. These corporate giants have substantial cash reserves, diverse revenue streams, and established market positions. However, because of their size, they usually grow more slowly than their smaller counterparts—it’s simply harder to double in size when you’re already worth a trillion dollars.
Mid-cap companies often provide a middle ground proper to their size—a balance between the stability of large caps and the potential for growth of small caps. Small-cap stocks historically offer the highest growth potential but greater risks. In 2024, over 40% of small-cap companies were unprofitable, compared with just 7.4% of large-caps. This difference becomes especially important when interest rates are high, as smaller companies often struggle more with debt payments and higher operating costs. Below is a table looking at the performance of three popular ETFs representing different market caps:
Are There Funds That Invest Across Different Market Caps?
Yes, many mutual funds and ETFs offer exposure to multiple market capitalizations in a single investment. These are often called “multi-cap” or “all-cap” funds. For example, a total market index fund includes companies of all sizes, from the largest corporations down to smaller companies. Some funds maintain fixed allocations to each market cap category, while others adjust these proportions based on market conditions or the fund manager’s strategy.
Popular examples include the Vanguard Total Stock Market ETF (VTI) and the iShares Core S&P Total U.S. Stock Market ETF (ITOT).
Why Are Small-Cap Stocks Often More Volatile?
Small-cap stocks have relatively lower market values because these tend to be younger growth companies. Because of their growth orientation, they may be riskier since they spend their revenues on growth and expansion. Small-cap stocks are thus often more volatile than those of larger companies. Generally, large-cap stocks have slower growth and are more likely to pay dividends than faster-growing, small- or mid-cap stocks.
What Is a Market Capitalization-Weighted Index?
Many stock indexes, such as the S&P 500, are weighted by market cap. This means that stocks with larger market capitalizations make up more of the index.
How Do Stock Splits Affect Market Cap?
When a company has a stock split, it increases the number of shares outstanding while reducing the price of each share by a similar proportion. For instance, in a two-to-one stock split, there will be twice as many shares, but at half the pre-split price. As a result, the market cap should stay the same.
The Bottom Line
Market capitalization is important for understanding what kind of company you’re buying and its risk. While mega-cap tech giants like NVIDIA and Microsoft may grab headlines with trillion-dollar valuations, each market cap category serves a different role in a diversified portfolio.
Large-caps typically offer stability and dividends, mid-caps balance growth and established business models, and small-caps offer higher growth potential with higher risk. Understanding these differences can help you match your investment choices with your financial goals and risk tolerance.