The stock market offers only one guarantee to investors: Change.
Over time, it's perfectly normal to see different industries and sectors lead the broader market, as well as for the largest companies by market cap to be replaced by innovative, fast-growing businesses. In 1999, Lucent Technologies, Nokia, and General Electric were three of the 10 most-valuable publicly traded companies. Today, Nokia and GE respectively rank as Nos. 390 and 125 among the largest publicly traded companies on U.S. exchanges. Interestingly, Lucent isn't even a public company anymore. It was acquired by Alcatel in 2006, which in turn was bought by Nokia in 2015.
History suggests that many of today's largest companies are likely to fall down the market-cap leaderboard at some point in the future -- and that includes electric-vehicle (EV) manufacturer Tesla (TSLA 0.49%).
Tesla has delivered jaw-dropping returns over the past decade
Among S&P 500-listed companies, none has generated a bigger return on a trailing 10-year basis than Tesla (15,220%). In fact, no other S&P 500-listed company is even halfway to the returns Tesla has delivered for its faithful shareholders over the past decade.
The company has benefited from its successful ground-up build into mass production. Even with semiconductor chip shortages and China's zero-COVID strategy adversely affecting output at the company's Shanghai gigafactory, Tesla is on pace for its first year with over 1 million EV deliveries. With the company opening two new gigafactories this year, the expectation is for sustained high double-digit annual growth in production for the foreseeable future.
Tesla has also pushed decisively into the profit column. With the company no longer reliant on selling renewable energy credits to other automakers to push into the black, Wall Street has felt more comfortable placing a lofty valuation multiple on Tesla.
These could be some of the world's largest companies by 2035
But even the greatest companies can falter. Tesla's valuation is an eyesore in a generally commoditized industry where forward price-to-earnings ratios are regularly in the single digits.
Furthermore, CEO Elon Musk has become a gigantic liability for the company. His actions have drawn the attention of the Securities and Exchange Commission on more than one occasion, and his prognostications for when new EVs or innovations will make their debut have rarely, if ever, come to fruition.
What follows is a prediction of three stocks that could reasonably be worth more than Tesla by 2035.
The logical choice: Berkshire Hathaway
Of the thousands of publicly traded companies with a smaller market cap than Tesla at the moment, Warren Buffett's Berkshire Hathaway (BRK.A 0.41%) (BRK.B 0.11%) looks like the logical choice to eventually overtake North America's EV king by 2035, if not much sooner.
Although past performance is no promise of future results, Warren Buffett offers a return history like few other money managers. In the 57 years he's been CEO of Berkshire Hathaway, he's led the company's Class A shares to an average annual return of 20.1%. Put in another context, shareholders have doubled their money every 3.6 months, on average, for nearly six decades.
One of the reasons Berkshire Hathaway has been such a rock-solid performer for so long is Warren Buffett's penchant for packing his company's investment portfolio with cyclical stocks. The Oracle of Omaha is well-aware that recessions are an inevitable part of the economic cycle. Likewise, he keenly understands that periods of economic expansion last considerably longer than these downturns. As such, he's loaded Berkshire Hathaway's investment portfolio with companies that can take advantage of the natural expansion of the U.S. and global economy over time.
Dividend stocks are another unsung hero of Berkshire Hathaway's investment portfolio. Over the next 12 months, Buffett's company is on pace to collect approximately $6.07 billion in dividend income, with the vast majority of it coming from just five stocks. Publicly traded companies that pay a dividend are often profitable, time-tested, and offer a rich history of outperformance, compared to their non-paying peers.
A final feather in the cap for Berkshire Hathaway is its aggressive share repurchase program. Warren Buffett and Executive Vice Chairman Charlie Munger have overseen $62.1 billion in share buybacks since July 2018.
If everything went just right: Visa
The second stock with the innovative capacity to overtake Tesla in market cap, if everything goes just right, is payment processor Visa (V -0.03%). Visa would need to add $516 billion to its existing market cap just to match Tesla.
Despite being cyclical, Visa brings a number of competitive advantages to the table that could reasonably allow it to become a $1 trillion company. To start with, Visa benefits from the aforementioned disproportionate amount of time the U.S. and global economy spend expanding, relative to contracting. As economies expand over time, consumer and enterprise spending climb. More spending equates to higher fees being collected by Visa.
Visa also finds itself in the pole position in the U.S., the largest market for consumption in the world. As of 2020, it controlled 54% of credit card network purchase volume. In addition, none of the four major payment processors in the U.S. expanded their share of credit card network purchase volume more than Visa following the Great Recession.
Another reason for Visa's steady outperformance is its avoidance of lending. The problem with entering the lending arena is that it would expose Visa to loan delinquencies and possible charge-offs when recessions occur. Because the company strictly sticks to payment processing, it doesn't have to set aside capital to cover loan losses when the domestic and global economy weaken.
Finally, don't overlook Visa's growth runway. Since most global transactions are still being conducted using cash, Visa has an opportunity to organically or acquisitively move into underbanked regions of the world.
The long shot: Salesforce
A third stock that could be worth more than Tesla by 2035, which is a bit more off-the-radar from the other two companies on this list, is cloud-based customer relationship management (CRM) software solutions provider Salesforce (CRM 0.79%). It's considered a bit of a longshot to pass Tesla given that its current market cap of $163 billion trails Tesla ($939 billion) by quite a bit. Then again, 13 years is a considerable amount of time to close this gap.
Without getting overly technical, CRM software is what consumer-facing businesses use to enhance existing relationships with customers and improve sales. It's used to oversee product/service issues, as well as online marketing campaigns, and can aid with predictive analyses to determine which existing customers are likeliest to purchase a new product or service.
Aside from worldwide CRM software sales sustaining double-digit growth, what's made Salesforce such an intriguing investment has been its steady market share gains in the CRM space. Not only has Salesforce been the top-ranked global CRM provider for nine consecutive years, but its share of the CRM market has been steady climbing. In 2021, it accounted for 23.8% of worldwide CRM application share, which is over four times higher than its next-closest competitor.
Salesforce's rapid growth is also a function of co-CEO and co-founder Marc Benioff's bolt-on acquisition strategy. Buyouts, which include the likes of MuleSoft, Tableau Software, and Slack Technologies, have expanded the company's ecosystem and provide ample opportunities to cross-sell solutions to new businesses.
If Salesforce can maintain its roughly 20% annual growth rate, it could have a real shot to surpass Tesla by 2035.