Looking for future $1 trillion stocks using a decade time span may seem like picking your own starting point when running a marathon, but it is an interesting exercise nonetheless. That's especially true when you consider the three high-growth stocks we will look at today: Nvidia (NVDA -3.33%), ASML (ASML -1.03%), and MercadoLibre (MELI -1.79%).
While Nvidia and ASML "only" need share price growth of 9% and 17% annually over the next decade to reach this mark, MercadoLibre would need a stunning 35% yearly return.
Despite this wide range of required returns, there is plenty of reason to argue that these businesses could become $1 trillion stocks over the next decade -- or perhaps even sooner.
1. Nvidia: Current market cap is $469.5 billion
Intent to pick up where it believes Moore's Law is beginning to tail off, Nvidia and its accelerated computing platform has produced some incredible earnings results over the past decade. That has led to the stock's gain of nearly 5,000% over those 10 years.
Led primarily by its gaming and data center operations -- which combined to account for 86% of Nvidia's 2022 sales -- the company grew to a market capitalization of $800 billion by late November 2021 before dropping nearly 44% from its 52-week high.
At the core of this drop was an intense technology-based sell-off that saw the Nasdaq-100 index briefly down a whopping 48% from its 52-week high. Making matters worse for Nvidia, it recently announced preliminary earnings where management stated that fiscal 2023 second-quarter revenue would be closer to $6.7 billion instead of the $8.1 billion guided for initially. Particularly troublesome is the slowdown in its gaming division, which expects a sales decline of 33% year over year for Q2 amid softening consumer spending.
So why is Nvidia an excellent pick to reach a $1 trillion market cap?
Look no further than the company's other-worldly artificial intelligence (AI) ambitions and data center operations. Recording triple-digit year-over-year sales growth from its hyperscale cloud customers in Q1 of 2023, Nvidia is deeply ingrained in a market that projects to grow by 29% annually through 2026.
Nvidia boasts over 3 million developers and its products are in use by every major cloud provider. The company looks to not only bring high-performance computing to its massive customers but AI software that runs the gamut on use cases. Currently trading with a market capitalization of nearly $470 billion, Nvidia is a good bet to reach $1 trillion by 2032 -- especially with its price-to-earnings ratio being cut in half to 50 over the last two years.
2. ASML: Current market cap is $226.5 billion
While Nvidia looks to build off a decline from Moore's Law, ASML plans to extend the law's life as far as possible with its one-of-a-kind deep ultraviolet (DUV) and extreme ultraviolet (EUV) lithography systems. Lithography is the process of using light to "print" increasingly small patterns onto silicon wafers used in semiconductor chips.
However, ASML is interesting because it has a leadership position in the more mature DUV market and a near monopoly with its bleeding edge EUV systems. This domination and importance to its customers have led to incredible pricing power, which has helped the company's stock produce total returns of around 700% since 2012.
Just how strong is this pricing power and the subsequently wide moat it creates? Consider the following chart.
ASML Revenue (TTM) data by YCharts.
Thanks to this absurd 49% free cash flow margin, ASML has more than quadrupled its dividend payments over the last five years while its payout ratio has remained consistently below 50%.
ASML Dividends Paid (TTM) data by YCharts.
While this growing dividend (currently yielding 1.4%) should theoretically slow ASML's growth trajectory, the company has grown sales by 16%, 21%, and 20% annually over the last year, three years, and five years.
Requiring a 17% annual return to reach our goal, ASML's combination of steady revenue growth, incredible free cash flow creation, and a reasonable price-to-free cash flow ratio of 22 should help power the stock to $1 trillion.
3. MercadoLibre: Current market cap is $54.2 billion
Right out of the gates, I'll admit this one may be a stretch to reach $1 trillion by 2032 -- especially considering MercadoLibre's market capitalization of only $50 billion. However, the Latin American e-commerce and fintech juggernaut has two massive tailwinds working in its favor.
First, as of January of 2020, the World Bank estimated that only 55% of adults in Latin America had a financial account with a banking institution. While this figure has improved in the following two years, it is still jarring to see -- especially compared to the fact that only 5% of United States households do not have a bank account. Furthermore, many of these adults with some form of a bank account are still severely "underbanked," as they have historically not had access to nearly the variety of financial products as U.S. citizens.
Second, e-commerce only accounted for roughly 5% of Latin American retail sales as of 2021. Contrast this mark with the U.S.'s figure of 20% and it is clear to see that online sales are just beginning to hit their long-term growth trajectory in the region.
Thanks to this underbanked population and nascent e-commerce industry, MercadoLibre is still in the early chapters of its growth story -- despite rising over 1,000% in the last decade.
Now with 41 million unique buyers shopping on MercadoLibre and 38 million active customers using its fintech products, the company has amassed a massive user base.
For Q2 of 2022, its commerce segment grew by only 23% year over year, lapping incredible Q2 2021 growth of 101%, while the fintech unit grew by a stunning 107% for the quarter. Now accounting for 46% of MercadoLibre's sales, these rapidly growing fintech sales have the company poised to transform into a finance-first, retail-second enterprise.
Trading at six times sales, the company's valuation is lower than it has been in the last 10 years.
MELI PS Ratio data by YCharts.
This lower valuation, paired with the company's 53% annualized revenue growth rate over the last five years and burgeoning fintech unit, has me optimistic that MercadoLibre may just provide the needed returns to reach $1 trillion by 2032.
