The world's largest companies dominate Wall Street headlines and are household names. Who doesn't know mega-cap stocks like Apple, Microsoft, and Tesla? To be fair, the business world is ruthlessly competitive, so growing a company to $200 billion or more in market cap is not easy.
But finding those up-and-coming rising stars can lift a portfolio for years. That's why these Fool.com contributors did the homework to find potential winners, companies you may have heard of already and that have so much room to grow over the coming years.
They predict that Roku (ROKU -10.29%), Cloudflare (NET 1.44%), and SentinelOne (S 1.70%) will continue growing for years to come. The next generation of mega-cap stocks? Read below to find out why they just might be.
This stock could stream massive gains with an ad market recovery
Will Healy (Roku): Perhaps no other company can capitalize on the transition from traditional TV to streaming more effectively than Roku. Consumers turn to the company for its low-cost equipment and easy-to-use players. Its mostly neutral platform has attracted thousands of content providers, giving these viewers ample choice.
However, the real genius may come from its advertising platform. The variety of customers and content providers allows advertisers to target desired demographics and closely monitor the performance of their ads.
Admittedly, Roku stock is down by around 85% from its all-time high during the 2021 bull market as market sentiment and a depressed ad market weighed on the stock.
Nonetheless, it could make a huge comeback, and here's why.
Despite that slump, it continues to attract users and usage. At the end of the second quarter, its customer base had nearly reached 74 million, growing 16% over the previous year. Streaming hours grew at an even faster pace of 21% during that time, surpassing 25 billion hours for the first time.
Once advertising recovers, that growth in streaming hours could lead to a massive revenue increase. Between this anticipated growth and a predicted expansion in content distribution, Cathie Wood and her team at Ark Invest think Roku can reach $605 per share by 2026. And if Ark's bull case of $1,493 per share proves correct, the market cap would climb to over $200 billion.
Admittedly, a 20-fold gain in three years is an unlikely scenario. However, Wood's successes with Tesla and Bitcoin give credence to her views on Roku. Also, Fortune Business Insights forecasts that streaming will become a $1.9 trillion market by 2030, up from $554 billion in 2023, increasing the likelihood of significant growth.
Furthermore, Roku is in a strong competitive position. Analytics company Pixalate estimated a 50% market share for Roku in North America. It also operates in four European countries and expanded its licensing program to Central America. Those market expansions should help maintain its growth rates.
Indeed, it may take longer than three years to reach mega-cap status. But between a secular move to streaming and the entertainment stock's ability to draw advertisers and viewers, its lead in the streaming space could propel its market cap to $200 billion and beyond.
The sky's the limit for this cloud services company
Jake Lerch (Cloudflare): With a market cap of $22 billion, Cloudflare is a hot tech stock firmly in the large-cap category. However, given its potential, Cloudflare is a company that could achieve mega-cap status (i.e., a market cap above $200 billion).
Indeed, at its peak, Cloudflare was already well on its way. When shares hit their all-time high in late 2021, the company boasted a market cap of nearly $70 billion.
The company, which operates a vast array of global data centers, is riding the cloud computing wave. It provides thousands of organizations with edge computing capabilities, security solutions, and web-based performance upgrades.
Shares have tumbled over the last two years, but the company's fundamentals remain sound. And in some cases, they've improved. For example, Cloudflare's free cash flow has improved significantly to $63 million. Consider that prior to this year, Cloudfare had not recorded positive free cash flow in its four years as a public company.
In addition, revenue has roughly doubled from 2021. The company's trailing-12-month revenue is $1.1 billion, up from $656 million in 2021. Similarly, revenue growth remains robust at 32% year over year. That's down from the more than 50% revenue growth seen a few years ago but remains quite impressive in any respect.
NET Revenue (TTM) data by YCharts. TTM = trailing 12 months.
Finally, looking ahead, analysts expect Cloudflare to maintain 30% sales growth next year, while earnings per share is projected to nearly triple to $0.37/share. For those investors looking to add some high-octane growth to their portfolio, Cloudflare is a name worth considering.
This best-in-class company is poised to gobble up market share
Justin Pope (SentinelOne): It seems news headlines frequently remind investors about the importance of cybersecurity. Just recently, casino company MGM Resorts was hacked in Las Vegas, which could cost the company $100 million in damages. The reality is hackers innovate too quickly for old-fashioned anti-virus products to keep up.
The need for faster, smarter security products has opened up opportunities for SentinelOne, which uses artificial intelligence to hunt for suspicious files proactively instead of reacting to a breach once it's already happened. SentinelOne's Singularity platform has won accolades from various industry third parties, like Gartner and Mitre.
There is a big opportunity ahead for SentinelOne to replace outdated products with its high-level technology. SentinelOne has been enjoying stellar growth; its customer count grew 30% year over year to roughly 11,000 in the second quarter of its fiscal year 2024.
S Revenue Growth Estimate for Current Fiscal Year data by YCharts.
Cybersecurity is highly competitive, and SentinelOne faces various rivals -- both new arrivals and longtime players in the industry. However, SentinelOne continues growing faster than most; its revenue estimates for this year top its major competitors. Additionally, there are more than 33 million businesses in the United States alone, so there is no shortage of opportunities to expand, especially as the digital economy demands businesses move online.
Investors must follow SentinelOne's progress closely due to the fast-paced environment in which it works. Still, the company is an emerging force in a lucrative market -- a combination that could create stellar returns for investors from the stock's current market cap of just over $5 billion.
