Stocks That Are Monopolies

There are very few true monopolies in the stock market these days the classic sense, as antitrust laws and regulations aim to promote competition.

Nonetheless, there are some companies that enjoy a dominant market position or quasi-monopolistic advantages in their respective industries.

Key Takeaways – Stocks That Are Monopolies

• Stocks that are monopolies (examples)
  • Microsoft (MSFT)
  • Alphabet (GOOG, GOOGL)
  • Amazon (AMZN)
  • Meta (Facebook)
  • Adobe (ADBE)
  • Visa (V)
  • Mastercard (MA)
  • Moody’s (MCO)
  • S&P Global (SPGI)
  • Utility companies
• Discounted expectations are what matter in asset pricing, as market prices already reflect the current assessment of a company’s fundamentals and future prospects.
  • This makes it important to analyze whether new information aligns with or deviates from those discounted expectations to determine the potential impact on the stock’s performance.
• Example: Google’s near-monopoly in online search is facing disruption from generative AI companies like OpenAI and Anthropic, whose conversational AI tools like ChatGPT and Claude provide alternative methods for information retrieval.
  • This forces tech giants to rapidly innovate with their own AI offerings while simultaneously creating new opportunities for other companies like Nvidia that supply the critical computing hardware powering these AI models.
• Even seemingly impenetrable monopolies are prone to disruption. And trading them is not straightforward when it’s all about how things transpire relative to what’s discounted in.

Examples of Stock That Are Monopolies

Here are a few examples:

Microsoft (MSFT)

While not a complete monopoly, Microsoft has a dominant position in the desktop operating system market with its Windows software and productivity suite Office.

Alphabet (GOOG, GOOGL)

Google is the undisputed leader in online search.

Their market share often exceeds 90% in many regions.

Its dominance in search and online advertising gives it monopolistic characteristics.

Why Google’s Dominance is So Strong

• Search Excellence – While not perfect, Google continually refines its search algorithm to deliver relevant results. This has built a strong user base who trust the platform.
• Integration with Technology – Google Search is integrated into the massively adopted Android operating system, Chrome browser, and other Google products, which strengthens its position.
• Data & AI – Google’s vast data collection and AI advancements give them an edge in understanding search intent and delivering the best answers/results.

Competition Exists

While Google’s position is a tough nut to crack, there are regional competitors and other preferences and influences in search:

• China – Baidu is the primary search engine.
• Russia – Yandex holds significant market share.
• Specialized Search – Microsoft’s Bing has usage (and is integrated into some browsers), and search engines like DuckDuckGo (focused on privacy) exist.
• Chatbots – More and more people prefer using chatbots and generative AI for (some) search queries and other forms of information retrieval.

Amazon (AMZN)

Amazon commands a significant portion of the e-commerce market, especially in certain product categories.

Its Prime ecosystem and logistics capabilities create substantial barriers to entry.

Meta (Facebook)

Controls a massive share of social networking with Facebook, Instagram, WhatsApp, and Threads.

Adobe (ADBE)

Adobe has a virtual monopoly in creative software like Photoshop, Illustrator, and Premiere Pro, used extensively by professionals.

Visa (V) and Mastercard (MA)

These payment processors have a duopolistic control over credit and debit card networks in many countries.

Moody’s (MCO) and S&P Global (SPGI)

These two firms dominate the credit rating industry, assessing the creditworthiness of debt issuers.

Utility Companies

Many utility firms operate as regulated monopolies in their service areas for electricity, natural gas, and water distribution.

Important Considerations

Regulations

Many countries have antitrust laws to prevent monopolies or break them up, especially if they abuse their position to harm consumers.

Disruption

Even seemingly unassailable businesses can face disruption from new technologies or changes in the market.

If you look at the biggest public companies in 30-year increments (e.g., the leading Dow Jones constituents over time), you can see that they change a lot from generation to generation.

We talk about this more later on.

Investment Risk

While these stocks can offer stability, they may also have limited growth potential.

Regulatory changes or potential disruption are risks to consider.

While these companies enjoy significant market power, they aren’t entirely free from competition or disruption risks.

Antitrust scrutiny, technological innovations, and new competitors can challenge their dominance over time.

Discounted Expectations Are What Matter

What’s known is already discounted in the price.

It’s not whether things are good or bad, but whether they’re good or bad relative to what’s priced in.

“Innovative companies” often have huge forward expectations baked into their valuations.

If they don’t fulfill these expectations, you can actually expect them to lag the market or even see their nominal prices fall.

Monopoly Disruption Example: Google vs. Generative AI Companies

Google, while maintaining a near-monopoly in the search engine market, is facing new challenges from new AI technologies.

Companies like OpenAI and Anthropic have introduced tools like ChatGPT and Claude, respectively, which offer alternative methods for information retrieval.

These tools have evolved how users interact with and obtain information online, and provide more customized, conversational, and nuanced responses to queries.

In some cases, they can provide better answers to some queries, though they face drawbacks in other ways – e.g., lack of updated training data, they hallucinate/make stuff up.

In response, Google has developed and pushed forward its own AI-driven tools to stay competitive (e.g., Gemini).

Agility vs. Bloat

Smaller startups often have the advantage of agility, being able to innovate and adapt more quickly compared to larger corporations.

This is largely due to the former’s lean structures, which allow for faster decision-making and less bureaucratic hindrance.

Startups can also catch up faster than established companies because they can simply copy the products, services, and best practices of established players, and iterate off them.

This has been going on for centuries/millennia (e.g., British shipbuilders copying the Dutch).

It’s cheaper than innovating from scratch.

Evolution (e.g., Nvidia)

Going off the same example, generative AI tools like ChatGPT require substantial computing power.

This has elevated companies like Nvidia, which is a leading provider of GPUs essential for AI processing.

This demand surge for Nvidia’s GPUs, important for training and running AI models, caused Nvidia’s valuation to soar, even surpassing tech giants like Google.

Many compare it to selling shovels during a gold rush, where those selling the tools might run a more profitable operation than those delivering/seeking the end product.

This second-order effect illustrates how foundational technology suppliers can benefit from the rise of advanced AI applications and reshape market valuations and power in the tech sector.