Skip to main content

What Is a Large-Cap Stock? Definition, Valuation & Risk Level

Large-cap companies drive business—and the stock market—as we know it.
Image of a skyscraper with text overlay: "What Are Large-Cap Stocks?"

A large-cap stock has a market capitalization of between $10 billion and $200 billion.

What Are Large-Cap Stocks? How Many Are There?

Size means everything on Wall Street: The bigger the company, the more valuable it is perceived to be by the public. Large-cap companies have a market capitalization of between $10 billion and $200 billion; these are companies like McDonalds (MCD), T-Mobile (TMUS) and Dow Chemical (DOW), which are household names because they make the products and services we use every day.

​​Large-cap stocks are also referred to as blue chips, because if you’ve ever played poker, you know that the blue poker chips are the most valuable.

As the cornerstone of many buy-and-hold portfolios, large-cap stocks represent established companies with diversified, global operations and a track record of stable earnings growth. They have proven they can withstand market volatility, and many offer a dividend, which is a portion of their profits sent directly to shareholders.

Large caps may not have the explosive potential of small-cap stocks, but they also come with less risk. And while businesses of all shapes and sizes trade on Wall Street, the lion’s share of stock market indexes belong to just a few large-cap companies: Eighty percent of the S&P 500 is made up of large-caps, as are half of the components in the Dow Jones Industrial Average (the other half are even bigger). This makes large-caps easily tradable as well as a favored vehicle of many institutional investors. 

What Is Market Cap? Where Do Large Caps Fit In?

Investors use market cap to gauge what a company is worth because it gives them an easy way to compare companies with different share prices.

To calculate a company’s market cap, all you have to do is multiply the current price of one share by the number of outstanding shares.

​​Here is a table of stocks categorized by market cap:

CategoryMarket Capitalization

Mega-Cap

$200 billion and greater

Large-Cap

$10 billion–$200 billion

Mid-Cap

$2 billion–$10 billion

Small-Cap

$250 million–$2 billion

Micro-Cap

$50 million–$250 million

While large-cap companies are not as big as mega-caps, there are many more of them—and some would argue that unlike the mega stocks, large-caps still have room for growth.

Why Are Large-Cap Stocks Less Volatile?

No stock is immune to Wall Street’s gyrations: All stocks rise and fall in accordance with overall economic conditions, such as inflation or recession; most every stock will enjoy upward appreciation during a bull market, and no stock is immune to extreme selloffs, should they become stuck inside an asset bubble.

Scroll to Continue

TheStreet Dictionary Terms

In general, investors can look to a stock’s size and value to illustrate how risky it is as an investment. Because large-caps have both size and valuation on their side, they often make for some of the safest investment choices outside of fixed-income securities like Treasury securities and bonds.

The reasons are threefold:

  1. Large caps are typically mature companies. They have been around for a while—after all, their market share didn’t grow into the billions overnight.
  2. Large-caps offer steady earnings growth, which means their operations are financially healthy, as well as transparent
  3. Plus, many large-caps offer a dividend, which can act like a safety valve in turbulent markets

And since large cap companies are a popular investment choice for many investors, they experience high liquidity, which means that shares can be bought and sold easily.

All of these things spell lower volatility.

When Do Large-Cap Stocks Do Well?

Oftentimes investing comes down to a matter of risk and reward.

Investing in small-caps allows investors to take advantage of the risk premium, which means that the riskier the asset, the higher the potential return. Small-caps typically have more opportunities to grow and expand, and some investors find that outshines the comfort and predictability of investing in larger companies.

But how much risk is an investor willing to take for the chance of an outsized profit? Just as small-caps demonstrate potential for skyward growth, they could just as quickly watch their gains erode when the market heads south.

Large-caps, on the other hand, are more established companies that have demonstrated stable growth, so while the reward might not be as juicy, they usually have much lower risk profiles, making them an attractive investment at nearly every stage of the market cycle.

Are Large-Caps Overvalued?

How can you tell if a large-cap is overvalued? Not all stocks have more room to run. Investors should always keep an eye on stock fundamentals and take into consideration a company’s price-to-earnings ratio and enterprise value, both of which measure current share prices with earnings.

How Can I Buy Large-Caps? What Are Some Large-Cap Stocks to Buy Now?

Investors can buy shares of large-cap companies through an online broker, such as Charles Schwab, TD Ameritrade, or Robinhood. Large-caps can also be purchased as part of a mutual fund or in an exchange-traded fund that tracks a stock market index.

What are some of the best large-caps trading today? TheStreet.com just published its list of the 20 best large-cap stock mutual funds right now.

And while inflation is hitting new highs and supply chain disruptions are decimating earnings, TheStreet’s Dan Weil reminds investors how important it is to remember that stock prices do not always track company performance.

Mochi donuts LEAD image JS

How Dunkin', Starbucks Are Making a Play For a New Market

This unusual food might seem like a new innovation, but it has a long lineage.

Juva Cannabis Lead

Cannabis Sales Could Do Something Surprising in Recession

With growing signs of an economic slowdown, use of marijuana may be headed in an unusual direction.

Volatility

3 Must-Know Ways to Judge Volatility

Before you put on your next option trade, ask yourself this question: How do I feel about the state of market volatility?