For most companies, the coronavirus disease 2019 (COVID-19) pandemic represents one of the most disruptive events they're ever navigated through. But for the market's largest companies, it's represented an opportunity to get even bigger.
Despite historic stock market volatility, the tech-heavy Nasdaq Composite has hit more than two dozen all-time highs in 2020, with Apple, Microsoft, Amazon, and Alphabet, the parent company of Google and YouTube, leading the way. All four of these companies are part of the psychologically important $1 trillion market cap club.
The question is, which company will be next to join them? Though it could be a while, with no other public company sporting a market cap higher than $690 billion at the moment, the following four stocks are, in my view, the most likely to hit a $1 trillion valuation next.
Facebook: Current market cap of $690 billion
The company that's likeliest to ascend to trillion-dollar status next is social media giant Facebook (NASDAQ:FB). Yes, it certainly helps that Facebook only has $310 billion to go before reaching a $1 trillion valuation. However, there's more to it than mere proximity.
One reason Facebook is such a rock in the social media space is due to its ability to attract users. At the end of the first quarter, Facebook had 2.6 billion monthly active users (MAU), and just shy of 3 billion MAUs when taking into account all of its owned sites, including Instagram and WhatsApp. These figures are staggering, and advertisers will pony up whatever is necessary to reach a targeted audience. This affords Facebook incredible pricing power in virtually any economic environment.
Maybe even more amazing is the fact that Facebook hasn't even monetized some of its most valuable assets. Though it has been generating mountains of revenue from ads on Facebook and Instagram, the company hasn't even scratched the surface in terms of monetizing Facebook Messenger and WhatsApp. Once Facebook opens the floodgates to monetizing its other popular platforms, it should have little trouble cresting a $1 trillion market cap.
Visa: Current market cap of $429 billion
The second likeliest company to reach a $1 trillion valuation is payment processing giant Visa (NYSE:V). To hit this psychological market cap, Visa's share price would need to climb by 133%. For context, Visa's share price is up 996% over the trailing 10-year period, so a 133% gain is very much within reach.
Arguably the biggest catalyst in Visa's quest to hit $1 trillion will be its dominance in the U.S. market. Visa currently controls more than half of all credit card network purchase volume in the U.S., which is perfect considering that 70% of this country's gross domestic product is dependent on consumption. If the United States rockets out of the coronavirus recession, Visa is going to be in great shape to take advantage of the rebound.
It's worth noting that the COVID-19 pandemic could be a long-term win for Visa. With cash currently being viewed as a possible source of germ-spreading, the coronavirus could expedite the move toward more plastic being used.
Also, don't forget that Visa is purely a payment processor and not a lender. While this prevents the company from generating interest income during periods of rapid economic expansion, it also means no direct consequences if loan delinquencies rise during an economic contraction or recession. This is a big reason Visa's profit margin is above 50%.
Berkshire Hathaway: Current market cap of $464 billion
Next up, I believe Warren Buffett's conglomerate Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) could have a path to a $1 trillion valuation. Even though Buffett has underperformed the S&P 500 over the past decade, he's led Berkshire to an average annual return of 20.3% over the past 55 years. At this rate of return, Berkshire could hit a $1 trillion valuation in less than four years.
The two knocks against Berkshire Hathaway are that it isn't a high-growth company like Facebook or Visa and, at least in the near-term, it's going to be dragged down by the underperformance of bank stocks. Buffett's favorite industry to invest in is banks, and they've been walloped by the lower interest rates and higher loan loss provisions tied to the coronavirus pandemic.
But that doesn't mean Berkshire Hathaway can't beat Facebook or Visa to the trillion-dollar club. Warren Buffett still has a knack for picking out winners. Apple, for example, has generated more than $60 billion in unrealized gains, not including dividends, in about four years for Berkshire Hathaway. With his company holding a record $137 billion in cash at the end of March 2020, Buffett has the firepower to make more game-changing investments.
Likewise, Buffett and his team may choose to go on the offensive with acquisitions. The deal to acquire Dominion Energy's natural gas storage and transmission assets for $9.7 billion could be just the beginning of an acquisition and growth spurt for Berkshire Hathaway.
Tesla: Current market cap of $278 billion
Fourth and finally, the wild card of the group, Tesla (NASDAQ:TSLA). Electric-vehicle (EV) manufacturer Tesla would need its share price to rise by roughly 260% to reach trillion-dollar status. It sounds ludicrous, but so did a $500 share price on Tesla just six months ago. As of this past weekend, it closed above $1,500 a share.
The biggest catalyst working in Tesla's favor right now is "FOMO," or the "fear or missing out." Though it does look as if an EV industry bubble has formed, history has shown that predicting when these bubbles will peter out is impossible. Thus, increasing bets against Tesla on the short side (and the subsequent short squeeze) could be just the thing that rockets this company to a $1 trillion valuation. Whether it remains above $1 trillion for any significant length of time is another story.
Beyond talk of bubbles and FOMO, Tesla has successfully built an auto company from the ground up to reach the point of mass production. It's the first new auto company to do that in over five decades. There's little question that EVs are the future of the automotive industry, and the expectation is that Tesla's first-mover mass production advantage will allow it to maintain superior brand appeal, especially among more affluent clientele.
If we're talking purely on the basis of forward-looking fundamentals, I'd tell you Tesla has little shot of reaching $1 trillion before Facebook, Visa, and Berkshire Hathaway. But Tesla's rapid sales growth and production expansion, coupled with an epic short squeeze, could do the trick.