# Large-Cap Stocks: Definition, Benefits, and Investment Tips

> **Definition**
>
> Large-cap stocks represent companies with a market capitalization over $10 billion. They're integral to the U.S. equity market because they're a core component in investment portfolios due to their stability, reliable dividends, and transparency.

Large-cap stocks, defined as companies with a market capitalization over $10 billion, account for about 98.5% of the U.S. equities market. These stocks, often core portfolio holdings, are considered safer investments due to their stability, transparency, and reliable dividend payouts. While they offer less growth potential compared to smaller companies, large-cap stocks can still achieve significant price gains through innovative market initiatives.

## Understanding Large-Cap Stocks: Key Characteristics and Market Impact

Large-cap (sometimes called "big cap") refers to a company with a market capitalization value of more than $10 billion. Large cap is a shortened version of the term "large market capitalization." [Market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) is calculated by multiplying the number of a company's shares outstanding by its stock price per share. A company's stock is generally classified as large-cap, mid-cap, small-cap, or micro-cap.

### Key Takeaways

*   Large-cap stocks have a market capitalization value of more than $10 billion and are key players in the U.S. equity market.
*   These stocks represent roughly 98.5% of the U.S. equities market, often acting as core portfolio investments.
*   Large-cap companies are known for their transparency and stability, often paying high dividends due to their established markets.
*   Investing in large-cap stocks is seen as a long-term strategy, benefiting from their stability and innovative market leadership.
*   Large-cap companies are frequently included in leading U.S. benchmark indexes like the S&P 500 and the Dow Jones Industrial Average.

## Understanding Large-Cap Stocks: Their Role in the Market

Large-cap stocks make up about 98.5% of the U.S. equities market based on the Wilshire 5000 Index, which requires a minimum $25 million float-adjusted market cap. As of April 30, 2021, the index includes over 3,500 stocks covering the U.S. equity market.

In March 2021, the [top U.S. stocks by market cap](https://www.investopedia.com/articles/active-trading/111115/why-all-worlds-top-10-companies-are-american.asp) were:

1.  Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL))
2.  [Saudi Aramco](https://www.investopedia.com/what-is-saudi-aramco-4682590) (2222.SR)
3.  Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT))
4.  Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN))
5.  Alphabet ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL) & [GOOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOG))
6.  Meta ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)), formerly Facebook
7.  Tencent ([TME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TME))
8.  Tesla ([TLSA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA))
9.  Alibaba Group ([BABA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BABA))
10.  Berkshire Hathaway ([BRK.A](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.A))

Large-cap companies often appear in major global benchmark indexes. In the U.S., these include the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite.

Large-cap stocks, making up most of the U.S. equity market, often serve as core investments. They typically have the following characteristics:

1.  **Transparent:** Large-cap companies are typically transparent, making it easy for investors to find and analyze public information about them.
2.  **Dividend payers:** Large-cap, stable, established companies are often the companies investors choose for dividend income distributions. Their mature market establishment has allowed them to establish and commit to high dividend payout ratios.
3.  **Stable and impactful:** Large-cap stocks are typically blue-chip companies at peak business cycle phases, generating established and stable revenue and earnings. They tend to move with the market economy because of their size. They are also market leaders. They create new solutions and operate globally, so news about them often affects the whole market.

## How to Calculate Market Capitalization: A Key Financial Metric 

Market capitalization describes the market size of a company. Market capitalization is an equity market segregation used broadly in the investment industry. A company's market capitalization is an important characteristic considered by investment companies and individual investors. Market capitalization is one characteristic of a company used in investment analysis. Market capitalization is usually used in conjunction with other stock characteristics, such as price to earnings and earnings growth estimates. It is also an indicator of a company's [market depth](https://www.investopedia.com/terms/m/marketdepth.asp).

You can find market capitalization by multiplying the number of shares by the stock's share price. The number of shares outstanding is reported on a quarterly basis, but the price of the stock can change from minute to minute. Therefore, the market capitalization value is actively changing with the market price. For example, a company with 10 billion shares outstanding, trading at $10 per share, has a market capitalization of $100 billion. Likewise, a company with 100 billion shares outstanding, and trading at a price of $1, also has a market capitalization of $100 billion.

Publicly traded stock issuance is used as a capital raising mechanism for publicly traded companies. When a company chooses to offer its shares for trading on the open public market, it typically uses share issuance as its primary equity capital raising tool. Thus, equity share management is a primary function used by well-established companies for capital, and shares outstanding are a part of that management process.

## Exploring Different Market Capitalization Categories: From Small-Cap to Mega-Cap 

Stocks are usually grouped into [three main types](https://www.investopedia.com/articles/markets/022316/small-cap-vs-mid-cap-vs-large-cap-stocks-2016.asp): large-cap, mid-cap, and small-cap. Some also use categories like mega-cap and micro-cap. [Mega-cap](https://www.investopedia.com/terms/m/megacap.asp) refers to stocks with a market cap of greater than $200 billion. Micro-cap is less than $300 million, and nano-cap may also be used for less than $50 million.

A large-cap company has a market capitalization of over $10 billion. A mid-cap company has a market capitalization between $2 billion and $10 billion, and a small-cap company has less than $2 billion in market capitalization. Large-cap companies generally have broad market experience and better access to capital markets, providing greater trading liquidity.

## Strategies for Investing in Large-Cap Stocks: Building a Stable Portfolio

Investors like to diversify their portfolios by investing in companies in different industries with varying market caps, revenues, and earnings growth projections. Because they're big, large-cap stocks are seen as safer investments. While they do not offer the same growth opportunities as emerging mid-cap and small-cap companies, large-cap companies are innovative market leaders. As a result, their stock price can gain significantly through specific market initiatives or around groundbreaking market solutions.

[Investing in large-caps](https://www.investopedia.com/ask/answers/041015/what-are-common-advantages-investing-large-cap-stocks.asp) is typically a core long-term strategy due to their stability and dividends. [Financial advisers](https://www.investopedia.com/terms/f/financial-advisor.asp) usually suggest diversifying an investment portfolio by including small-cap, [mid-cap, and large-cap](https://www.investopedia.com/mid-cap-long-term-returns-5225971) stocks. Allocations and investment decisions are typically based on risk tolerance and investment horizons.

## The Bottom Line

Large-cap stocks, with a market capitalization exceeding $10 billion, make up a significant portion of the U.S. equity market and serve as essential core holdings in investment portfolios. Investors value their stability, transparency, and capacity for dividend payouts, typically associated with established, blue-chip companies. While not offering the rapid growth potential of smaller companies, large-cap stocks afford reliability and are often included in long-term investment strategies for diversifying portfolios.

Understanding their role, benefits, and limitations is crucial for informed investment decisions.

> **Article Sources**
>
> 1.  Financial Industry Regulatory Authority, Inc. "[Market Cap, Explained](https://www.finra.org/investors/insights/market-cap)."
>     
> 2.  FT Wilshire. "[Wilshire Mutual Funds Schedule of Investments, September 30, 2021](https://assets-global.website-files.com/60f8038183eb84c40e8c14e9/61a67d81fdb0181a23ac77c5_Wilshire-5000-Index-Fund-Schedule-of-Investments-09-30-2021.pdf)."
>     
> 3.  FT Wilshire. "[Wilshire Mutual Funds Summary Prospectus, April 30, 2021: Wilshire 5000 Index Fund](https://assets-global.website-files.com/60f8038183eb84c40e8c14e9/6130f8e9b1e52a565a55886e_Wilshire-5000-Index-Fund-Summary-Prospectus.pdf)," Page 2.
>     
> 4.  FT Wilshire. "[FT Wilshire 5000 Index: Index Methodology](https://assets-global.website-files.com/60f8038183eb84c40e8c14e9/6133d178c152540f8262128e_ft-wilshire-5000-methodology.pdf)," Page 1.
>     
> 5.  PricewaterhouseCoopers. "[Global Top 100 Companies by Market Capitalization March 2021](https://www.pwc.com/gx/en/services/audit-assurance/publications/global-top-100-companies.html)," Download PDF, Page 22.
>     
> 6.  Nasdaq. "[What Is Market Capitalization, and What Can It Reveal?](https://www.nasdaq.com/articles/what-is-market-capitalization-and-what-can-it-reveal)"