A decade ago, Apple and ExxonMobil were the most valuable companies in the world, but neither had a market cap exceeding $600 billion. Today, Apple and Microsoft are the most valuable companies in the world, and both have a market cap exceeding $2 trillion. Investors should ask themselves what changes the next decade will bring.
Here are two growth stocks that could join Apple and Microsoft in the $2 trillion club by 2033.
NASDAQ: TSLA
Key Data Points
1. Tesla
Tesla's (TSLA +0.91%) current market cap of $535 billion would need to increase about 3.7-fold over the next decade, or 14% annually, to reach $2 trillion. But some analysts expect the company to blow by that figure well before 2033. For instance, Ark Invest believes Tesla will have a market cap between $4.4 trillion and $7.9 trillion by 2027. That may be optimistic -- although Ark has been right about Tesla in the past -- but that forecast makes $2 trillion look easy.
Tesla led the industry last year in battery electric vehicle sales, with an 18.2% market share, and management expects to grow deliveries by 50% annually over the long term. The company also reported the highest operating margin among volume carmakers last year, meaning Tesla is more profitable than its peers, and management says its margins will remain the highest in the industry. Collectively, those predictions put Tesla in a good position. Electric vehicle (EV) sales are forecast to grow at 23% annually through 2032, but Tesla believes it will outpace that figure while maintaining higher margins than its competition.
Investors have good reason to believe that narrative. CEO Elon Musk says Tesla has the most advanced manufacturing technology on the planet, and Cairn Energy Research Advisors says Tesla will be able to produce battery packs (the most expensive part of an EV) at a lower cost per kilowatt-hour than any other automaker through the end of the decade. But management expects full self-driving (FSD) software to be a real profit driver in the long run.
Tesla has a big advantage when it comes to autonomous vehicles. Data is the foundation of artificial intelligence (AI), and Tesla has more autopilot-enabled cars on the road than any competitor, meaning it has more data to train the AI models that power its FSD platform. Musk also believes the in-car supercomputer that runs Tesla's FSD software is the most efficient inference computer in the world. Collectively, those advantages position Tesla as an early leader in the autonomous vehicle market, and Precedence Research expects that market to grow at 39% annually through 2030.
Here's the bottom line: Given Tesla's strong position in two quickly expanding markets, investors can reasonably expect annualized sales growth of at least 25% over the next decade. That estimate is conservative compared to its annualized sales growth of 47% over the last five years. Assuming Tesla hits that mark, its market cap could increase 3.7-fold to $2 trillion while its price-to-sales ratio falls to 2.5 times sales, a discount to the current 6.9 times sales.
NASDAQ: GOOGL
Key Data Points
2. Alphabet
Alphabet (GOOG 0.20%) (GOOGL 0.41%) is much closer than Tesla to the $2 trillion milestone. Its current market cap of $1.4 trillion falls just 43% shy of that threshold, meaning it needs to grow at just 3.6% annually over the next decade.
The investment thesis for Alphabet is simple: Google Search is the most popular search engine, and YouTube is the most popular streaming service, and their popularity makes Alphabet an irreplaceable advertising partner for many brands. In fact, the company accounted for nearly 30% of global digital ad spending last year, according to eMarketer. Alphabet may lose some market share in the coming years, but it will likely maintain its leadership position. That puts the company in a good spot because the ad tech market is expected to grow at 14% annually through 2030.
Alphabet is also gaining ground in cloud computing. Google Cloud Platform held a 10% market share in cloud infrastructure and platform services in the first quarter, up from 8% last year, and its expertise in AI could be a significant growth driver in the coming years. Alphabet may not have a viral application like ChatGPT yet, but experts have recognized the company as a leader in AI infrastructure, conversational AI platforms, and AI-powered document analytics. That bodes well for the company because the AI software market could grow as fast as 42% annually through 2030, and the broader cloud computing market is expected to grow at 14% annually through the end of the decade.
Here's the bottom line: Alphabet has a strong competitive position in digital advertising and cloud computing, two markets expected to grow at 14% annually through the end of the decade. Shares currently trade at a reasonable 5.1 times sales, but if Alphabet grows revenue at 10% annually over the next decade -- a conservative estimate given its annualized revenue growth of 19% over the last five years -- its market cap could reach $2 trillion while its valuation multiple falls to an even more reasonable 2.7 times sales.
Of course, Alphabet may grow revenue more quickly than 10% annually given its strong presence in several quickly expanding markets, so its market cap could top $2 trillion long before 2033.
