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What is a Mega Cap?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 September 2016
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Mega cap is a term that is used to describe publicly-traded companies that are known to currently have a market capitalization that is among the highest found anywhere in the business world. There is some difference of opinion regarding how much capitalization a company must have in order to be considered a mega cap rather than merely a large cap. Many members of the financial community would agree that total market capitalization in excess of $200 billion US dollars (USD) would qualify a company for this status.

Referring to a business as a mega cap, large cap, mid cap, small cap, or micro cap is a quick way of indicating the general amount of market capitalization currently enjoyed by that company. Since investors and even some exchange traded funds monitor the market movements of mega and large cap businesses as one way of predicting trends in the marketplace, identifying the major players within the market is very important. Even if the idea is to invest in companies with less capitalization, investors may look closely at how well that smaller business is holding up in terms of securing and maintaining market share against the industry leader.

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New and emerging companies also pay close attention to a mega cap that is associated with the industry in which the two companies function. This is because companies with extraordinarily large amounts of capitalization are also likely to set industry standards that competitors must at least meet in order to remain successful with consumers. By observing what that industry leader is doing, smaller entities can develop product lines that mirror those of the more prominent company, while possibly including some extra benefit or feature that can aid in attracting the attention of consumers.

It is possible to invest in funds that include securities issued by mega cap companies only. For example, an all-cap fund of this type may include mega caps that are associated with several different industries like retail, technology and computer, and telecommunications. Often, the sheer size of these businesses provides a degree of stability to investors, since the potential for the value of those stock options to plummet for any appreciable period of time is relatively low. This means that even when general economic conditions do adversely affect the prices of stocks issued by these industry leaders, the decline is usually for a short period, and the prices begin to recover ahead of the smaller businesses.

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