One of the most exclusive circles in all of investing is the trillion-dollar club -- whose membership is limited to those enterprises with a market cap of more than $1 trillion. Apple was the first U.S. public company to achieve this lofty benchmark, establishing itself as the club's founder in August 2018. It was joined in rapid succession by Amazon, Microsoft, and Alphabet. Facebook recently joined their ranks, though Apple and Microsoft have since topped $2 trillion each.
Owning shares of these companies has been wildly profitable for long-term investors, with each stock exceeding the returns of the S&P 500 by a wide margin. The common threads that join them (market cap aside) are that each had a disruptive product or service, a significant market opportunity, and secular tailwinds to fuel their growth. Finding the next generation of stocks with similar attributes could be extremely lucrative for investors.
Let's look at three high-growth stocks following a similar path that could join the trillion-dollar club -- and enrich shareholders along the way.
Image source: Getty Images.
Tesla: Current market cap -- $620 billion
Tesla (TSLA -1.08%) is among the most widely cited companies with $1 trillion potential. The company revolutionized the market for electric vehicles (EVs), striking a chord with younger, more affluent car buyers, and making EVs more mainstream in the process.
While predictions vary, EVs are expected to begin outselling their fossil-fuel burning competitors as early as 2033, according to estimates by Ernst & Young. As the current industry leader, this puts Tesla in a strong position to reap the rewards of that growing secular trend.
In the first quarter, Tesla reported its highest-ever vehicle production and deliveries, despite seasonality and supply chain issues resulting from the pandemic. This helps illustrate the company's path forward. Perhaps more importantly, however, over a multiyear time horizon, the company expects to achieve 50% average annual growth in vehicle deliveries.
That isn't to say Tesla is without risk. Enigmatic CEO Elon Musk, while a visionary, is also something of a wild card. Reports surfaced early last month that Musk had twice violated a regulatory ruling that his social media posts be pre-approved by Tesla's legal department.
The growing competition in the EV space is also well documented. Ford's Mustang Mach-E has been making inroads into Tesla's dominance in the U.S., while Volkswagen has been eating into the company's market share in Europe. Then there are the EV start-ups that seem to make headlines every week, though some have yet to produce their first vehicle.
However, given Tesla's industry-leading position and its continuing momentum in production and deliveries, the company is well positioned to be a continuing force in the EV market and achieve a $1 trillion market cap over the coming decade.
Image source: Getty Images.
Nvidia: Current market cap -- $487 billion
With a market cap of less than $500 billion, Nvidia (NVDA -7.01%) would need to more than double from here to achieve a $1 trillion valuation. Considering that the stock has tripled over the past three years, a doubling doesn't seem so far-fetched.
Nvidia graphics processing units (GPUs) are a staple among serious gamers, commanding an 81% share of the discrete desktop market. The ongoing demand fueled an all-time revenue record in the first quarter, with the company's gaming segment delivering 106% year-over-year growth, after delivering 41% growth last year.
As impressive as that is, gaming is being supplanted by Nvidia's other big growth engine, the data center segment. Parallel processing, or the capacity to handle a host of complex mathematical computations simultaneously and at lightning speeds, makes Nvidia the top choice for many of the world's foremost cloud computing and artificial intelligence (AI) operations.
Each of the industry leaders, including Amazon's AWS, Microsoft's Azure Cloud, and Google Cloud, count on Nvidia GPUs. That's not all. IBM Cloud, Oracle Cloud, Baidu's AI Cloud, and Alibaba Cloud are all counted among Nvidia's biggest customers.
Being the default choice for cloud computing, data centers, and AI has been extremely lucrative for Nvidia, as is apparent in the company's results. In the first quarter, data center revenue grew 79% year over year, after delivering 124% gains last year.
Considering the company's relentless pace of innovation and its industry-leading position in not one, but two operating segments, it's not only possible, but likely that Nvidia's market cap will top $1 trillion over the next 10 years.
Image source: Getty Images.
Shopify: Current market cap -- $197 billion
Rounding out my top three stocks on the way to $1 trillion is e-commerce platform provider Shopify (SHOP 0.30%). While the company is furthest of the three from this lofty benchmark, that in no way diminishes its chances of getting there.
E-commerce might seem ubiquitous, but it's easy to forget that we are still very much in the early innings. While e-commerce sales surged 39% year over year in the first quarter, they still account for just 13.4% of total retail, according to data provided by the U.S. Department of Commerce.
By providing merchants with what they need to get their businesses online, Shopify has become the clear leader, powering the digital sales of 1.7 million merchants worldwide -- up from 1 million less than two years ago.
This massive influx of businesses has driven Shopify's impressive top-line growth. Revenue grew 110% year over year in the first quarter, after delivering 86% growth in 2020. Gross merchandise volume (GMV), which measures the value of sales on the platform, grew 114%, on top of 96% gains last year.
Shopify has two areas that could drive the company's future growth: international markets and Shopify Plus.
While Shopify has merchants in 175 countries around the globe, the vast majority are in North America. The company has been working to expand internationally, and those efforts are bearing fruit. The growth of GMV in the rest of the world outpaced growth in North America in the most recent quarter, as it increased its offerings to international merchants.
Shopify began as a way to level the playing field for small and medium-size businesses, but has since introduced Shopify Plus and added tools that cater to the unique needs of enterprise-level businesses. Shopify Plus now contributes roughly 26% of the company's monthly recurring revenue.
With the dominant position in a quickly growing industry, as well as accelerating growth internationally and with larger businesses, I think it's only a matter of time before Shopify's market cap tops $1 trillion.
