Dissecting Intangible Assets’ Market Dominance

two businessmen discussing intangible assets

“A vast spectrum of industries now counts intangible property as a major part of their value.” — Matthew Zischka

Ocean Tomo’s Intangible Asset Market Study for 2025 revealed that intangible assets constituted approximately 92 percent of S&P 500 market capitalization by year’s end.

That represents a 75 percentage point shift from 1975, when tangible assets represented 83 percent of the index’s value, with intangibles coming in at 17 percent.

“A vast spectrum of industries now counts intangible property as a major part of their value,” says Matthew Zischka, Principal in the Toronto office of Smart & Biggar, a member of the IPH Network. “That’s been building for a long time now as the knowledge-based economy matures and proliferates.”

The phenomenon, which the Ocean Tomo study’s authors call “economic inversion”, outstrips the Industrial Revolution’s impact on the sources and measurement of corporate value.

“While the Industrial Revolution required a century to unfold fully, the intangible revolution has occurred within a single human lifespan, with particularly rapid acceleration occurring in the 1985 to 2005 period when intangible assets’ market value (IAMV) increased from 32 percent to 79 percent — a remarkable 47 percentage point surge in just two decades,” they observe.

Why intangibles are so highly valued

Codebases, research and development, network effects and trade secrets have contributed mightily to the traditional stable of patents, trademarks, copyright, and industrial design assets helping make software, pharma and platforms among the most valuable companies today.

But brand value has also been particularly impactful.

“Even the most conventional industries have derived value from their brand recognition and reputation in the marketplace. Over the last century, market advantage has increasingly come from knowing how and having the reputation to get products into the market, and the ability to manufacture has taken a back seat.”
Matthew Zischka

The upshot is that market value these days stems from unique products that are technology laden or have significant brand recognition. But not without the help of intellectual property laws.

“Would intangibles be worth nearly as much if IP laws hadn’t evolved to let them thrive?” Zischka asks.

By way of example, Zischka points to the evolution of copyright law.

“In the sixties and seventies, there were many questions outstanding as to how innovative companies could adequately protect their software rights. But by the eighties, the law had established an approach that helped a lot of big software companies protect their rights in the code they created.”

Arguably, today’s controversies about IP rights in the artificial intelligence context are part of a similar process.

Heed the accounting

However that may be, a look at Ocean Tomo’s accounting is instructive: the authors don’t measure IAMV by counting line items on a balance sheet. Rather, they calculate intangible value as a residual, by deducing the net asset value of tangibles from a company’s market capitalization.

In other words, everything that isn’t a physical asset counts toward intangible value: that embraces brands, patents, software, data, and networks, among other things, but it also includes investor sentiment and growth expectations. And since intangibles lack the valuation anchors available for tangible assets, sentiment and growth expectations form a larger proportion of their value.

“That’s where brands and reputation come into the equation and why they are so impactful in valuation these days,” Zischka says.

Ultimately, then, intangibles have become such a large component of market value due to a combination of a real economic shift and value measurement artifacts.

The shift is from making things to making ideas, with value migrating from what can be touched to what can be built, designed, developed, and scaled. And intangibles scale with little cost: software copies cost nothing to reproduce, for example, and brands or proprietary data strengthen with use — something physical assets can’t do. The result is that firms steeped in intangible assets tend to have higher margins and faster growth, meaning that investors will pay more for them.

The artifact is that intangibles do not appear on balance sheets and their “value” lies in how the market prices the residual assets that accounting practice does not record. The upshot is that all investor sentiment and growth expectations are attributed to intangibles, perhaps resulting in overvaluations.

Arguably, then, the way intangibles are valued may detach them from fundamentals, something that’s widely recognized as a primary driver of the dot-com crash at the turn of the century.

But Zischka says things have changed.

“To be sure, valuations were not quite real when the bubble burst, but now tech markets are a little more mature. When markets contract nowadays, tech is affected but not necessarily overaffected. Companies built on tech and intangible assets are no longer just speculative outliers.”