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Don't Buy the Top Stock By Spencer Jakab

Don't touch that dial: U.S.-China trade talks kick off today. So does Apple's annual developers' conference . Investors are less excited about both than they were the last time around. Nevertheless, Friday's post-jobs report bounce has put the S&P 500 within about 2% of its all-time high hit back in February.

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Blink and you missed it.

For two days last week Nvidia regained its spot as the world's most valuable company. As of Friday's close, Microsoft was back on top and Apple, long-time holder of the crown, was worth a measly $3 trillion-a distant third.

Nvidia's renewed status lasted twice as long as a company to which it's often compared : Cisco Systems. A quarter century ago Cisco also was seen as a must-own stock indispensable to a transformative technology. Yet anyone who bought its shares on March 27, 2000, the day its market value peaked, would have done much better with a bank savings account.

Not every stock with the same claim to fame is doomed to the same mediocre performance, but the odds aren't great. In an analysis going back to December 2003, Ned Davis Research calculated the total return of owning shares in the most valuable U.S. company has been 105 percentage points less than an S&P 500 index fund as of last week.

What seem like unassailable competitive advantages tend to erode over time. And when everyone knows about a company and it seems like it can do no wrong then it doesn't have to fall far short of perfection to disappoint. Sometimes the result can be downright ugly.

General Electric was the world's most valuable for years in the late '90s and early aughts. CEO Jack Welch was considered a management genius and the conglomerate a leader in many industries, but aggressive accounting, excess reliance on its financing arm and a stretched valuation preceded a bailout and then years in the doldrums before it was split apart .

If you extend the analysis to the previous century and beyond U.S. borders then the returns look even worse. Before it lost its technological edge in the mid-1980s, IBM seemed untouchable. Its market value was overtaken by one Japanese company and then another in the 1980s. Eight of the world's 10 most valuable companies were listed in Tokyo by 1989. That didn't end well either .

Corporate size has advantages, but it also brings drawbacks. It would be impossible for Nvidia shares to have similar returns over the next decade to what they had in the past one. If they did, its value would be many times as large as the global economy.

Sometimes size is a handicap in and of itself: Warren Buffett's Berkshire Hathaway, America's ninth most-valuable company, produced nearly 80 times the return of the S&P 500 in the first 45 years he ran it. In the last 15, though, it lagged slightly. It's too big to take advantage of similar investment opportunities.

Most individual stocks have poor odds of beating the market and it doesn't seem to be much different for the most valuable one.

Stocks I'm Watching

Tesla : Bad bromance? The electric-vehicle stock sold off in premarket trading as investors watch for any further updates in the high-profile falling-out between President Trump and Chief Executive Elon Musk.

Intuitive Machines ; AST SpaceMobile ; Rocket Lab : While Musk has walked back his threat to stop operating a SpaceX spacecraft on which NASA depends, his feud with Trump has boosted these space-technology stocks. Shares of all three rose premarket. Late Friday, United Airlines said it had disabled SpaceX's Starlink Wi-Fi on planes after a static problem.

EchoStar : The Wall Street Journal reported the satellite-and-wireless company is considering a bankruptcy filing as it faces a regulatory review of its spectrum licenses. Shares dropped roughly 11% before the bell.

Robinhood , AppLovin : Analysts viewed the stock-trading platform and the advertising-technology company as probable additions to the S&P 500 in the index's quarterly rebalance, but no membership changes were made. Both stocks dropped more than 5% premarket.

MP Materials : U.S. negotiators are expected to press for a relaxation of China's rare-earth metal export curbs, as trade talks resume. Shares in the biggest U.S. rare-earth miner rose 2% ahead of the open.

Meta Platforms : Facebook's parent company is in talks to make a multibillion-dollar investment into artificial-intelligence startup Scale AI, according to a media report.

AlphaWave IP : U.S. chip maker Qualcomm agreed to buy the U.K.-listed semiconductor company for about $2.4 billion . AlphaWave shares surged.

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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June 09, 2025 06:34 ET (10:34 GMT)

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