The problem with finding stocks that could be the next Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) is that you’re looking for a needle in a haystack. How many investors knew they had the tiger by the tail when buying either stock in 2010? Very few. So what should investors look for to find the next trillion-dollar companies? Is it incredible revenue growth? How about big profits? There’s no obvious answer.

Of all the S&P 500 stocks, only four have a market capitalization of more than $1 trillion: Apple, Amazon, Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, GOOG). Moreover, the average age of these four companies is around 37 years. Therefore, the odds are low that firms founded in the 2000s will be the next trillion-dollar companies.

Of the names below, the latest was founded in 1993. And while other companies may currently have larger market caps, these ones have the best shot at becoming the next trillion-dollar companies. 

NVDA Nvidia $277.49
BRK-B Berkshire Hathaway $328.55
V Visa $232.73

Nvidia (NVDA)

Chipmakers Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) have batted for supremacy in the graphics processing unit (GPU) market over the past decade. While AMD’s chips are cheaper, Nvidia’s are generally more powerful, with the latter focused on the high-end chip market

In terms of stock performance, AMD has seriously outperformed NVDA over the past five years, gaining more than 700% while NVDA is up around 400%. Yet, NVDA has outperformed so far in 2023, rallying 90% compared with a 35% advance for AMD. In addition to the broader rally in chip stocks, Nvidia is benefitting from investors’ excitement about artificial intelligence (AI).

As my InvestorPlace colleague Alex Sirois recently noted: “The firm’s H100 graphics cards are required to train and deploy AI software and are in short demand. Those chips are fetching between $36k to $46k through retailers and eBay. Nvidia’s H100 chips are the newest chip from Nvidia and are proving integral to generative AI and large language models like ChatGPT.”

The reality is I like both NVDA and AMD and their chief executive officers (CEOs). AMD CEO Lisa Su has done a masterful job guiding the company through the semiconductor landmines of the past decade. Meanwhile, Nvidia CEO Jensen Huang has done an excellent job capitalizing on secular trends in technology such as artificial intelligence, data centers and cloud computing. 

From an investment standpoint, it’s hard to pick a winner between AMD and NVDA, but this is an article about the next trillion-dollar companies. I think Nvidia, which currently has a $685.4 billion market cap, gets to $1 trillion before anyone else.   

Berkshire Hathaway (BRK-B)

Of all the companies listed on a U.S. stock exchange, Berkshire Hathaway (NYSE:BRK-B) is the largest without hitting the trillion-dollar mark with a market cap of $723.3 billion. Warren Buffett’s business is a beauty to behold, but it’s not exactly a growth machine in the traditional sense. 

A quick look at Berkshire’s 2022 shareholder letter highlights that since 1965, BRK-B stock has delivered an annual gain of 20% on 29 occasions out of 57 years. Over the same time, the S&P 500 has delivered a 20% return, including dividends, in 19 out of 57. Who says Berkshire’s not a growth stock?

Berkshire stock likely doesn’t get as many buyers as it should because investors are worried about the Warren Buffett discount. What’s that, you ask? It’s the amount investors think its share price drops when the Oracle of Omaha finally goes to his maker. 

I’ve argued for years that if Berkshire were to systematically dismantle its assets through a carefully planned auction process, the proceeds would be significantly higher than $329 a Class B share. 

For example, the 2022 shareholder letter points out that, in 1994, Berkshire completed its seven-year accumulation of Coca-Cola (NYSE:KO) stock, paying $1.3 billion for the 400 million shares. Today, those shares would cost $25.7 billion. In 2022, Coca-Cola paid Berkshire $704 million in dividends, or 54% of its total investment.  

You can’t put a price on that kind of value creation.

Visa (V)

Visa (NYSE:V) would have to more than double its current market cap of $487.4 billion to get to $1 trillion. But, over the past five years, it’s generated a cumulative return of 85%. If it keeps up this pace, it ought to get there by 2030. 

How does it get there sooner? It becomes the fintech of all fintech stocks. How likely is that? It’s possible. 

Visa reported its fiscal second-quarter results on April 25. Revenue of $8 billion was 11% higher than a year earlier and $200 million better than the analyst estimate. On the bottom line, net income of $4.3 billion was up 17% year over year, good for a 54% net margin. For comparison, Apple’s is less than half that.

“I have been at Visa for nearly a decade and I have never been more excited about the opportunities in front of us,” stated CEO Ryan McInerney in the accompanying press release. “While there is macroeconomic uncertainty, I feel confident in Visa’s ability to manage through changing environments.”

McInerney said in Visa’s analyst conference call that FedNow, the real-time payment system to be introduced by the Federal Reserve in July, is the most significant update to the U.S. payment system in the past 40 years.

“Modernizing the payments infrastructure in the United States is a smart thing to do,” he said. “It’s a necessary thing to do, and it’s good for Americans.”

Rather than be worried about FedNow, he’s excited to see how it can help Visa become even better for its customers. A business that can win in most or all economic environments is a smart long-term bet. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Source link

Leave a comment

Your email address will not be published. Required fields are marked *