Publicly traded companies hitting a $1 trillion market cap is psychologically fulfilling but pretty rare. Of the more than 8,000 securities investors can choose from, just five in the U.S. have hit a valuation of $1 trillion or higher: Apple, Microsoft, Amazon, Alphabet, and Facebook.
But we also know that the U.S. and global economy will grow over time. This growth, coupled with ongoing innovation, should allow additional companies to attain the psychologically important $1 trillion valuation. The following four stocks look to have all the tools needed to become $1 trillion companies by the turn of the decade.
One of the surest ways to build wealth for more than five decades has been to hitch a ride on billionaire Warren Buffett's coattails. Buffett has been the CEO of conglomerate Berkshire Hathaway ( BRK.A 1.18% )( BRK.B 1.49% ) since 1965, and in that time has led his company's shares to an average annual return of 20%. Including year-to-date gains in 2021 for the Class A shares (BRK.A), Buffett has overseen aggregate share gains of close to 3,400,000%!
One reason Berkshire Hathaway has so consistently delivered for shareholders is Buffett's cyclical tendencies. Even though recessions and contractions are a normal part of the economic cycle, the Oracle of Omaha is keenly aware that economies grow over time, and that periods of expansion last substantially longer than contractions. He's piled his company's capital into sectors that thrive from periods of expansion, such as technology, financials, and consumer staples.
Warren Buffett is also a huge fan of dividend stocks. Despite Berkshire Hathaway never paying a dividend, the company is on pace to collect more than $5 billion in dividend income this year. Relative to Berkshire's cost basis, we're talking about a 5% yield on cost, which is exceptionally good. Since dividend stocks are usually profitable and time-tested, they're the ideal type of company Buffett looks to add to Berkshire Hathaway's portfolio.
Although Buffett won't be leading Berkshire Hathaway forever, the company will be in good hands with investing lieutenants Todd Combs and Ted Weschler exerting their influence. Combs and Weschler have been adding a number of innovative growth companies to Berkshire's portfolio in recent quarters to take advantage of the outperformance of growth stocks.
Given Berkshire Hathaway's track record, it looks like a sure thing to hit a $1 trillion valuation well before 2030.
Whereas Berkshire Hathaway's current market cap is the closest on this list to $1 trillion, fintech stock Square ( SQ -1.21% ) is the furthest away ($123 billion market cap). But that doesn't mean an eightfold return from this point isn't possible by 2030.
Square's bread-and-butter operating segment for more than a decade has been its seller ecosystem. This is the division that provides point-of-sale devices, analytics, and loans to help merchants grow their business. In the seven years leading up to the pandemic, gross payment volume (GPV) for the seller ecosystem surged from $6.5 billion to $106.2 billion. In 2021, GPV will likely top $140 billion with ease.
What's more, the seller ecosystem is generating more of its GPV from larger merchants (i.e., those with $125,000 or more in annualized GPV). Since this is a merchant fee-driven segment, bigger merchants mean more gross profit potential for Square.
However, the company's long-term growth potential will be dictated by digital peer-to-peer payment platform Cash App. In the last three years, ended 2020, Cash App's monthly active user (MAU) count more than quintupled to 36 million. What's more, Square is bringing in $55 in gross profit per MAU, compared to spending only $5 per user to attract new users. That's one heck of a margin.
What'll tie everything together is Square's pending acquisition of buy now, pay later company Afterpay. Afterpay will help Square create a closed payment ecosystem, which means merchants will be able to accept Cash App. Tying these services together could allow Square to be one of the decade's fastest-growing financial services companies.
Another fast-growing mega-cap stock with a really good chance of hitting a $1 trillion valuation by 2030 is cloud-based customer relationship management (CRM) software provider Salesforce.com ( CRM 3.86% ).
CRM solutions are used by consumer-facing businesses to enhance client relationships and lift sales. Aside from simple tasks like logging and accessing real-time data, CRM software is used to manage online marketing campaigns, run predictive analyses on an existing client base, and oversee product or service issues. It's a commonly deployed solution in the service industry, but CRM is increasingly finding a home in newer sectors, such as healthcare and finance.
Salesforce is the center of attention in this double-digit growth space. It was responsible for 19.8% of all global CRM spending in the first half of 2020, according to a report from IDC. This was more than the company's four closest competitors on a combined basis. With close to four times the CRM share of its nearest competitor, Salesforce is highly unlikely to lose its competitive edge anytime soon.
The company's management team has also demonstrated a knack for making smart, earnings-accretive acquisitions. CEO Marc Benioff has overseen the buyouts of MuleSoft, Tableau, and most recently Slack Technologies. While the deal to buy Slack does open a new revenue stream, it's the ability to cross-sell its CRM solutions to a host of small and medium-sized businesses that makes the Slack buyout such a smart move.
According to Benioff, Salesforce is on track to hit $50 billion in annual sales by fiscal 2026. For some context, it brought in $21.3 billion in full-year sales in fiscal 2021. If Salesforce can maintain a compound annual growth rate of 18% to 19% for the remainder of the decade, it should have a real shot at quadrupling in value and hitting a $1 trillion valuation.
A fourth and final stock with a really good chance to hit a $1 trillion market cap by or before 2030 is payment-processing kingpin Visa ( V 4.28% ). At a current market cap of $501 billion, shares of the company would simply need to double.
Similar to Berkshire Hathaway, one of Visa's biggest catalysts is that it's cyclical. Although recessions tend to reduce spending, and therefore negatively affect Visa's merchant-based revenue, these pullbacks in the economy rarely last longer than a few months to a couple of quarters. Meanwhile, the last economic expansion lasted longer than a decade. Visa is simply playing the odds, which heavily favor optimists.
It certainly doesn't hurt that Visa is the undisputed payments market share leader in the U.S., the biggest market for consumption in the world. In 2018, Visa was responsible for 53% of all credit card network purchase volume, which was more than 30 percentage points higher than its next-closest competitor. Furthermore, Visa's share expanded faster in the U.S. following the Great Recession than any of the other major payment processors.
Something else working in the company's favor is its lack of lending. Despite giving up the opportunity to generate interest income and fees by lending, Visa is also escaping the inevitable rise in credit delinquencies that occurs during economic contractions and recessions. Without any outstanding loans, Visa isn't required to set aside capital for delinquencies, which is what allows it to bounce back from recessions so quickly.
With plenty of opportunity to expand its payment infrastructure to underbanked emerging markets, and the company not afraid to make acquisitions to bolster its reach, Visa looks like a no-brainer to reach a $1 trillion valuation this decade.