The technology sector is by far the greatest value creator in U.S. economic history, with five companies across the industry now valued at $1 trillion or more.
Apple leads the way with a valuation of almost $3 trillion. It's closely followed by Microsoft, with Amazon and Google parent Alphabet also longtime members of the $1 trillion club. Semiconductor giant Nvidia is the newest member, having only joined in 2023.
I want to introduce you to two companies that are still a long way off from earning a $1 trillion market capitalization but could rapidly climb their way up the valuation ladder over the next decade thanks to their presence in the artificial intelligence (AI) industry. If they do, investors who buy shares in these companies today could see significant gains over the next 10 years.
1. Oracle
First up is Oracle (ORCL 2.02%). This cloud-computing giant is worth $307 billion right now, so its stock would have to rise 225% to carry the company to a $1 trillion valuation. It has a pathway to get there thanks to its data-center infrastructure, which has become the best performing and the most cost effective in the industry when it comes to training artificial intelligence models.
Oracle has been in business since 1977 when it developed its revolutionary database-management software for enterprises. It then helped its customers prepare for the internet age in the 1990s, and today it's intensely focused on cloud computing. It officially launched Oracle Cloud Infrastructure in 2016, which not only rents the company's powerful data-center infrastructure to its customers, but it also offers a portfolio of cloud-based software applications to accelerate business processes.
The cloud is where modern companies store their most valuable data, and data is the nectar AI consumes to grow more intelligent. That's why the data center is crucial -- more computing power means faster AI development, training, and deployment. Oracle has multiple deals with Nvidia, which makes the most advanced semiconductor hardware in the world for accelerated computing and AI.
Oracle allows customers to build their AI models using up to 32,000 of Nvidia's latest graphics processing units (GPU) chips; whereas, other cloud providers like Amazon Web Services (AWS) top out at around 20,000. As a result, Oracle has become the go-to provider of cloud services for generative AI developers, and it signed over 30 new customers in that segment alone during the fiscal 2023 fourth quarter (ended May 31).
Based on Oracle's $49.9 billion in fiscal 2023 revenue and its current market cap of $307 billion, its stock trades at a price-to-sales (P/S) ratio of 6.1. Assuming that number remains constant, the company will need to generate $163.9 billion in annual revenue by 2033 in order to justify a $1 trillion valuation. That means it will have to grow its revenue by 12.6% per year between now and then.
Is that possible? Well, Oracle has grown its revenue at a compound annual rate of 20.2% since its stock listed publicly in 1986. Therefore, I'd say it has a great shot at joining the $1 trillion club, and if it does, investors who buy Oracle stock today will more than triple their money.
2. Advanced Micro Devices
Advanced Micro Devices (AMD 2.37%) is a world-leading semiconductor company. Its chips can be found in popular high-end electronics like Microsoft's newest Xbox gaming console and the infotainment centers inside Tesla's electric vehicles. It also makes advanced chips for data centers, but it has lagged behind Nvidia in the AI segment, specifically.
AMD is worth $178 billion today, so its stock would have to surge 461% to catapult the company to a $1 trillion valuation. AI might be its best shot, because many experts believe AMD is the best candidate to unseat Nvidia's dominant 90% market share in the AI semiconductor space. The company will release its new MI300 data-center chip later this year, which was designed to rival Nvidia's hottest A100 and H100 chips.
The MI300A is a 3D stacked package combining processing (CPU) and graphics (GPU) chips to create the world's first advanced processing unit (APU) for data centers. It has already been selected by the Lawrence Livermore National Laboratory to power its new El Capitan supercomputer, which, upon completion, is expected to be more powerful than the current top 200 supercomputers combined.
Based on AMD's $21.9 billion in trailing-12-month revenue and its current market cap of $178 billion, its stock trades at a P/S ratio of 8.1. Assuming that number remains constant, AMD will have to generate $123.4 billion in annual revenue by 2033 to justify a $1 trillion valuation. That means it will have to grow its revenue by 18.9% per year between now and then.
The semiconductor industry is notoriously cyclical, which means consumers and businesses tend to invest more money in upgrading their hardware when the economy is strong, and they pull back when times are tough. As a result, AMD's revenue growth can be lumpy from year to year. With that said, in the five years between 2017 and 2022, the company grew its revenue at a compound annual rate of 34.6%, which is comfortably above the 18.9% target.
Here's the good news: Nvidia CEO Jensen Huang believes there is $1 trillion in existing data-center infrastructure that needs to be upgraded to support accelerated computing and AI, and if AMD can chip away at his company's market share, it could truly experience a growth explosion over the next decade (and beyond).
AI could be the segment which propels AMD to a $1 trillion valuation, and if it does, investors who buy the stock today will capture a whopping 461% gain.
