With only five companies worldwide currently valued above $1 trillion, it's an exclusive club few can ever hope to reach. However, three stocks are knocking on the door and could reach $1 trillion by 2030: Nvidia (NVDA -10.01%), Tesla (TSLA -1.92%), and Meta Platforms (META -4.13%).
Each company has a leadership position in its target market
There are a couple different ways to reach a $1 trillion market cap, which is calculated by multiplying share price by the number of shares outstanding. First, a company could be so large that the business warrants a trillion-dollar valuation due to its size. Second, investors may think highly of the company and place a premium on the share price because they are excited about the company's prospects.
Nvidia and Tesla fall into the latter camp, while Meta Platforms may gain entry due to its size.
These three are large, consumer-facing companies. Let's look at their core businesses before we dig into why they could be worth $1 trillion.
Nvidia makes graphics processing units (GPUs), which are used to process calculations efficiently, making them ideal for tasks including creating high-end gaming graphics, running engineering simulations, mining cryptocurrency, and creating artificial intelligence models.
Meta Platforms is the parent company of Facebook, Instagram, WhatsApp, and Messenger. While the primary business within Meta is advertising, the company has shifted its focus to delivering metaverse content and hardware.
Tesla is the largest battery/electric vehicle seller in the world and has a massive role to play in swapping the planet's vehicle fleet from gas to electric. While Tesla has ancillary businesses like solar and energy storage, it's primarily an automotive play.
Now that we've covered the companies, let's talk about what each needs to do to gain a $1 trillion valuation.
The numbers tell a story
Tesla and Meta Platforms each previously attained a $1 trillion market cap, but were brought under that level with the sell-off of tech stocks in 2021. All three companies were richly valued during that period, and the ride didn't last.
This is an important consideration when looking at how high a stock might climb, as investors may give a stock a strong premium one day and then dump it the next. It's critical to identify companies large enough to maintain a trillion-dollar valuation so the market's mood won't cause their stocks to fall out of the club.
Looking at each company's revenue shows that Meta could likely be the first to regain entry into the trillion-dollar club.
META Revenue (TTM) data by YCharts
However, Nvidia is valued at $780 billion versus Meta's $630 billion. This is possible because investors value Nvidia's shares much more highly than Meta's (or Tesla's). The chart below shows the companies' price-to-sales ratios.
META PS Ratio data by YCharts
At 29 times sales, Nvidia is an expensive stock. It's nearing the point where the bottom fell out of the stock in late 2021. So can it reach $1 trillion by 2030? I'd say yes.
Historically, Nvidia's price-to-sales ratio has been tumultuous, but if we assign a pre-COVID valuation of 14 times sales to the stock and Nvidia grows revenue (sales) by 16% annually, that would put it at a $1 trillion valuation by 2030. At Nvidia's current valuation, that only implies a 4.6% annualized return in the stock. Achieving a trillion-dollar market cap is attainable.
Tesla is another tough one to value. Using traditional automaker valuations doesn't make sense because Tesla's margins are far superior, but it began to lose that edge in its latest quarter due to price cuts. But it still rapidly grew a respectable 18% in Q1. It's better to value Tesla with earnings, the bottom line, rather than sales, the top line.
If we value the company using its highest profit margin level of 15% with a price-to-earnings ratio of 30 -- it's current P/E is around 50 -- Tesla's revenue would need to grow at a 15% compound annual growth rate to propel the company to a $1 trillion valuation by 2030. This could be a tall task as Ford and General Motors each had trailing-12-month revenue of about $165 billion, while Tesla would need $222 billion for this valuation to occur. So while it's not impossible, Tesla has a long road ahead.
This brings me to my most likely candidate to reach $1 trillion, Meta Platforms. Meta entered 2023 at a dirt cheap valuation and the stock has doubled so far this year. But it's still well below its historical price-to-sales valuation of 8, trading at 5.6 times sales. Should the company return to an 8 times sales valuation, it would be worth $904 billion, which would barely require any growth to reach the $1 trillion threshold by 2030.
But that doesn't mean Meta is a slam dunk, either. It's heavily spent on its metaverse initiatives, causing its profit margins to tumble. Management needs to figure that out, but it's unlikely it will be experiencing the same problems it is now in 2030.
Each company has its challenges, but I still think that thanks to a combination of business growth and investor-applied valuation, all three have a shot at reaching $1 trillion, with Meta being the most likely to do so.
