One of the most notable shifts in investing over the past couple of decades has been the increasing dominance of technology stocks. For example, roughly 20 years ago, the world's largest companies (in terms of market cap) were industrial stalwarts General Electric and ExxonMobil, which topped out at $319 billion and $283 billion, respectively.
Nowadays, however, the vaunted "Magnificent Seven" stocks -- among the most widely owned technology companies -- comprise seven of the top 10 positions (market caps as of market close on Wednesday):
- Apple -- $2.95 trillion.
- Microsoft -- $2.78 trillion.
- Alphabet?(GOOG -2.02%) (GOOGL -1.96%)?-- $1.72 trillion.
- Amazon -- $1.48 trillion.
- Nvidia -- $1.2 trillion.
- Meta Platforms (META -1.48%) -- $847 billion.
- Tesla -- $749 billion.
As illustrated above, Apple and Microsoft top the list, but there are a number of contenders that are working feverishly to ascend the ranks into the $2 trillion club. Here's my prediction for two stocks that will be among the next cohort of "two-trillionaires" joining this elite fraternity by the end of the decade -- if not sooner.
Alphabet's current market cap is $1.71 trillion, making it something of a shoo-in to join the $2 trillion club, particularly since the Google parent has been there before. The stock originally surpassed this benchmark in late 2021, just as the downturn gained momentum, ultimately taking the wind out of Alphabet's sails (and sales).
To rejoin the $2 trillion club, the stock would only need to increase its value by roughly 16% compared to Wednesday's closing price. To be clear, that's not a particularly high hurdle, working out to just 2.5% gains annually between now and 2030. Considering that Alphabet stock has increased by 245% over the past seven years (as of this writing), this seems like it will be a cakewalk.
There are numerous factors that will help drive Alphabet's ascent over the next few years. First and foremost is a rebound in the digital advertising space, which suffered as a result of the downturn. As companies slashed expenses in the face of economic uncertainty, market budgets were first on the chopping block. That said, with inflation cooling and the recovery gaining steam, advertising dollars are beginning to flow once again, and Alphabet will be among the principal beneficiaries.
Estimates suggest the global digital advertising market will grow from $531 billion in 2022 to $1.5 trillion by 2030, achieving a compound annual growth rate of roughly 14%, according to market research firm Research and Markets.
Alphabet is the digital advertising leader, controlling an estimated 30% share of the worldwide market last year, according to online marketing trade publication Digiday. The improving economic picture and a freeing up of marketing dollars will no doubt boost ad spending. This development alone could restore Alphabet's membership in the $2 trillion club.
The company will likely also benefit from the growing demand for artificial intelligence (AI). The large language models that form the foundation of generative AI are expensive to develop, costing tens or even hundreds of millions of dollars, putting the technology out of reach for all but the wealthiest companies. To help bridge the divide, Alphabet has developed its own cutting-edge models and is offering them for a fee to its Google Cloud customers, which will help fuel the next generation of its growth.
Estimates vary widely, but most experts put the economic value of generative AI in the trillions of dollars. Over the past year, Google Cloud has been the fastest-growing of the major cloud infrastructure providers, placing it at the forefront of this paradigm shift and well positioned to benefit from the financial windfall resulting from the AI gold rush.
The trifecta of online advertising, cloud computing, and generative AI -- all fueled by its search dominance -- should give Alphabet all the momentum it needs to rejoin the $2 trillion club.
2. Meta Platforms
With a market cap of $847 billion, Meta Platforms?has a bit more work to do to achieve its lofty aspiration, though some investors believe it's merely a matter of time. The stock will need to notch gains of roughly 136% compared to Wednesday's closing price to surpass this watermark, which amounts to approximately 13% gains annually. From a historical standpoint, this is certainly achievable, especially since Meta's stock increased by 186% over the past seven years despite enduring the worst downturn in more than a decade.
Since the lion's share of Meta's revenue also comes from online advertising, the company suffered through the same dearth of ad dollars as rival Alphabet. The situation was worse for Meta, however, as advertising on its social media platforms accounted for roughly 98% of its revenue.
Meta Platforms is the second-largest provider of online advertising, controlling roughly 20% of the worldwide market, according to Digiday, a runner-up to Google's dominance. Marketers have already shown a willingness to turn on the spigot in response to improving economic conditions, letting the advertising dollars flow once again. Like its larger rival, Meta will benefit from the resumption in ad spending, which will flow through to its revenue and earnings. This, in turn, will fuel its stock price gains.
One of the benefits of controlling the world's leading social media empire is the ongoing engagement with users and the treasure trove of data it offers. Meta has more than 3.1 billion daily users, while nearly 4 billion visit one or more of its platforms monthly. This provides a wealth of information for its AI systems.
Meta's approach to AI, however, has been in stark contrast to that of its rivals. The company is offering its Large Language Model Meta AI, aka LLaMA, to solo users for free. On the other hand, cloud services are required to pony up to provide Meta's AI models among their offerings. The company is also using LLaMA to develop a number of potentially lucrative AI applications, including AI-fueled features, AI agents, chatbots, and productivity apps, as well as tools to improve targeted advertising -- which is Meta's bread and butter.
A rebound in the ad market and Meta's AI ambitions should help the company achieve a $2 trillion market cap by the end of the decade.