Today, just six companies are valued at a market cap of more than US$1 trillion globally. These include tech giants such as Apple, Amazon, Alphabet, Microsoft, and Nvidia. The only energy stock part of this exclusive list is oil giant Saudi Aramco.
But in the next two years, two other stocks are likely to join the group. Here’s why I believe Meta Platforms (NASDAQ: META) and Tesla (NASDAQ: TSLA) should be the next two stocks to be valued at US$1 trillion.
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The bull case for META stock
Shares of Meta Platforms have more than doubled in 2023, making it one of the hottest stocks this year. Valued at a market cap of $811 billion, META stock is priced at 24 times forward earnings, which is quite reasonable, as its forecast to grow earnings by 31% annually in the next five years.
In recent months, Meta has been wrestling with a sluggish macro environment driving ad sales lower. It is also competing with other social media companies, such as TikTok and YouTube, to widen its audience base and user engagement.
However, Meta continues to launch new products, such as Threads, an app that competes directly with Twitter. It also introduced Instagram Reels, a short-form video platform to gain market share from TikTok and YouTube Shorts.
While enterprise ad spending remains tepid, Meta managed to report sales of US$32 billion in the second quarter (Q2) of 2023, an increase of 11% year over year. It ended Q2 with a net income of US$7.8 billion, which rose 16% compared to the year-ago period. Moreover, Instagram Reels now generates a run rate of US$10 billion, up from just US$3 billion in late 2022.
Meta Platforms also initiated a cost-savings program and reduced its employee count in the last 12 months.
Despite its massive size, analysts expect Meta’s sales to increase by 13.8% to US$133 billion in 2023 and by 12.6% to US$150 billion in 2024. Analysts remain bullish on META stock and expect it to gain 15% in the next 12 months.
Tesla stock
Tesla is the largest electric vehicle manufacturing company in the world. In Q2 of 2023, Tesla manufactured 480,000 vehicles allowing it to report sales of US$24.9 billion and adjusted earnings of US$0.78 per share.
However, rising competition from new and legacy electric vehicle (EV) players has lowered Tesla’s gross margin from 18.2% in Q2 from 25% in the year-ago period. The company had to lower vehicle prices to boost demand amid an inflationary pricing environment and rising interest rates.
But Tesla continues to invest in growth and is on track to end 2023 with sales of US$100 billion, an increase of 23% year over year. It also increased research and development expenses by 41% to US$943 million, which accounted for 3.8% of total sales.
While earnings are expected to narrow by 15.5% in 2023, it might widen by 37.5% in 2024. It suggests TSLA stock is priced at 53 times 2024 earnings, which might scare away the value investor.
With a 60% market share in the EV segment, Tesla enjoys a wide economic moat and industry-leading margins. Tesla is a top investment right now in a rapidly expanding addressable market.
