Market cap is kind of made up. The stock is worth what people believe it to be worth.

Profit is the number that really matters.

Profit and expected future profit (based on growth rate) is one of the ways a (non publicly traded) company is valued.

Theoretically that's how price targets are created by analysts. So market cap is explainable through that metric.

Profit this year and no growth vs. the same profit this year and double profits next year should lead to different market caps, and it generally does.

>Market cap is kind of made up.

For a public company, it's all about return on investment, right? Market cap is the most important factor in return on investment right? Therefore, market cap is the most important measure.

> Market cap is the most important factor in return on investment right?

Completely wrong. Hint: You are on HN. Startups obviously don't start at a large market cap.

I'm not wrong. You just interpreted me wrong.

I didn't say you should invest in companies already with a big market cap. I said market cap increasing is the ROI to investors (besides dividends, which is mostly irrelevant when investing in tech companies).

That's exactly how startups work. You invest at a cap of $50m. Its market cap increases to $1 billion. You just made 20x (provided you have liquidity).

Oh, I should only invest in companies with the biggest market caps?

Sure, if you think they can increase their market caps by the highest percentage and have enough liquidity for you to exit if you wish.

you invest in companies that would be biggest market cap in future.

By that logic even dollar value is made up. And profit in dollars too.

Market cap should be equal to the expected discounted profit.

Why is market cap the most important metric? It does not exist in a void. Market cap + P/E or forward P/E, P/B, P/S, etc. are all metrics of high import.

Market cap is one piece of a complicated picture. On its own, you don't know too much.

  Why is market cap the most important metric? It does not exist in a void. Market cap + P/E or forward P/E, P/B, P/S, etc. are all metrics of high import.

I thought it was obvious that I implied market cap increase by percentage.

When you're evaluating your ROI on tech stocks, the #1 factor is market cap delta between when you bought the shares and now.

And how much money do you make from trading large cap US equities?

if there are 100 shares in a company, but 2 people own them. person1 has 99 shares. person2 has 1 share. person1 sells their share for $100 to person3.

Does that mean the market cap is worth $10k? yes. is that meaningful if there are no other buyers at $100? no.

Not sure how this applies bere. It's a publicly traded company, so the price is literally what the in buyers are willing to pay.

Also diversified in ownership. Huang is at less than 4%, big institutions are also at less than 10%. So good chunk of the stock should be some level of liquidity at reasonable premium.

Just because it’s publicly traded doesn’t change anything.

There might be no buyers. There might be no buyers willing to buy at the last sold price. There might be no sellers willing to sell at the last sold price.

Market cap would be $10,000, but if there isn’t a single person willing to buy for that price, then is it worth that much,

Of course it changes it. The market cap you see is based on up to date trade clearing prices.

Nvidia is liquid, you dont have to worry about the stock having no buyers.

Luckily, Nvidia has no such liquidity issues given that it's the most traded stock in the world.

https://finance.yahoo.com/markets/stocks/most-active/

So yes, Nvidia's market cap is meaningful. If the reported market cap is at $3.5t and you want to sell your shares, you can easily find someone else who values Nvidia at $3.5t to buy them.

It’s a publicly traded company with very high liquidity (tens of billions being traded each day). The market cap is based on the price that other buyers and sellers are bidding. This hypothetical of there being no other buyers simply doesn’t apply.