The trillion-dollar market cap club currently holds only a select few members. Tech giant Microsoft recently surpassed Apple as the reigning mega-cap stock globally. Buoyed by explosive growth in artificial intelligence (AI) hardware demand, semiconductor designer Nvidia joined the trillion-dollar club in 2023. The winds of innovation are constantly shifting, leaving investors to wonder: who’s next?
We can make informed guesses about potential future titans by analyzing current trends and identifying companies on the cusp of paradigm-shifting breakthroughs. Here are two contenders with the potential to reach a $1 trillion valuation by 2028: Broadcom (NASDAQ:AVGO), and a Warren Buffett-led Berkshire Hathaway (NYSE:BRK.B).
But first, let’s see how companies generally become trillion-dollar behemoths.
How to become a trillion-dollar stock
To rise to trillion-dollar valuations (whether in United States dollars or Canadian dollars) within the next five years, it’s due to two reasons:
- The companies grow their fundamental business metrics like annual revenue, earnings per share, and cash flow.
- Investors should become increasingly enthusiastic about the company’s future growth prospects and increase the valuation multiples attached to their fundamental metrics.
Let’s explore how each company could graduate to a trillion-dollar stock status in five years. Canadian investors could grow their wealth by holding both stocks over the next half-decade.
Broadcom is a US$556 billion (CA$742 billion) semiconductor designer and manufacturer and a leading software vendor, generating more than US$35.8 billion in annual revenue from global customers. Organic growth, accretive acquisitions, and an AI-related valuation multiples expansion could easily propel the growth stock into the trillion-dollar league in five years.
The California-based company has a proven history of mergers and accretive acquisitions. Broadcom recently closed a US$69 billion acquisition of software giant VMware in 2023. It also closed a US$18.9 billion acquisition of CA Technologies in 2018, a US$10.7 billion deal for Symantec’s enterprise security division in 2019, and a US$5.5 billion scoop of Brocade in 2017.
The company could make smaller tack-in acquisitions to bolster its competitive position in the semiconductor, networking infrastructure, and software markets. Acquisitions could grow Broadcom’s revenue and earnings base, propelling it into the trillion-dollar club.
Moreover, Broadcom could be caught up in a circular AI growth wave that’s lifting Microsoft, Nvidia, and other AI stocks in 2024. The company is adding AI capabilities to its data centre networking hardware, and its Symantec software is getting an AI edge.
Wall Street analysts estimate a two-year revenue compound annual growth rate (CAGR) of 24.1% and project a 12.7% five-year earnings-per-share growth rate on AVGO stock.
Holding the company’s forward price-to-earnings multiple (P/E) of 25.8 constant over the next half-decade, Broadcom’s stock price could surge to more than US$1,974 per share, lifting its market cap to more than US$900 billion (CA$1.2 trillion) by 2028.
AVGO stock generated 417% in total returns over the past five years.
Legendary value investor Warren Buffett’s Berkshire Hathaway could steadily grow into a trillion-dollar stock in U.S. dollars by 2028. The US$840 billion (CA$1.1 trillion) conglomerate holds a smorgasbord of business in its portfolio, well curated by the legend himself, in partnership with the late Charlie Munger, over six decades.
How will Berkshire Hathaway graduate into a trillion-dollar stock? The company’s subsidiaries, especially its insurance and railroad, utilities, and energy operations, generate massive amounts of retained earnings and deployable free cash flow annually. The company uses some of the cash flow to earn interest income and finance accretive acquisitions.
Berkshire’s US$311 billion investment portfolio holds more than 915 million Apple shares that pay close to US$900 million in dividends every year. More than half of portfolio stocks pay recurring dividends. Other portfolio holdings include American Express and other profitable and cash flow-rich companies like Coca-Cola that may continue on a steady growth path for decades to come.
Combined, Berkshire’s fully-owned businesses and its investment portfolio holdings should steadily grow retained earnings, expand balance sheets, and amass massive amounts of cash flow over time.
Berkshire Hathaway’s market capitalization has grown at a relatively steady CAGR of 10.6% per annum over the past five years and 11.6% over the past decade. To reach a trillion-dollar market cap on the New York Stock Exchange, Berkshire Hathaway stock needs to grow at a CAGR of 5% annually between now and 2028.
Shares have done much better, historically.