There's been a changing of the guard in the stock market over the past 20 years, as technology stocks have ascended to positions once dominated by industrials. Looking back about two decades ago, the world's largest companies (in terms of market cap) were General Electric and ExxonMobile, worth $319 billion and $283 billion, respectively.
These days, a quick review of the leaders illustrates just how much times have changed in 20 years. Technology stalwarts Apple and Microsoft top the list, with market caps of $2.7 trillion and $2.4 trillion, respectively (as of this writing). In fact, seven of the top 10 largest companies have inexorable ties to technology.
That trend appears poised to continue. Advances in artificial intelligence (AI) have fueled the stock market rebound from its 2022 lows and will likely play a key role in the ascension of the next cohort of "2 trillionaires." Here's my prediction for the two AI growth stocks that will run circles around the competition, riding these secular tailwinds higher, ultimately joining this prestigious fraternity over the coming 10 years -- and likely much sooner.
Image source: Getty Images.
1. Alphabet
Alphabet's (GOOG 0.92%) (GOOGL 0.93%) current market cap is $1.73 trillion, which makes it the most likely candidate to join the $2 trillion club. To surpass this watermark, the stock would only need to increase by less than 16% from Thursday's closing price, which works out to just 1.5% in gains annually. Alphabet stock has increased more than 440% over the past decade (as of this writing), so it seems like a no-brainer.
It's important to note the Google parent is a former member of this exclusive club. The stock originally exceeded the threshold in late 2021, just days before the beginning of the economic storm that followed.
There are a number of catalysts that could drive Alphabet higher, the most immediate being the continued recovery of digital advertising. Marketing budgets were pressured over the past couple of years, but there are signs things are beginning to look up.
A forecast of the global digital advertising market suggests it will grow from $531 billion in 2022 to $1.5 trillion by 2030 -- compound annual growth of roughly 14%, according to market research firm Research and Markets.
Alphabet controls an estimated 30% share of the worldwide digital advertising market, according to online marketing trade publication Digiday, making it the undisputed global leader. As the economy improves, there should be a commensurate increase in marketing budgets, bringing spending back near historical averages. This alone could be sufficient to vault Alphabet's market cap back to $2 trillion.
There's also the vast opportunity that comes from recent advancements in generative AI. The largest technology companies -- Alphabet included -- are scrambling to develop productivity tools that adapt this groundbreaking technology. Furthermore, the large language models (LLMs) that underpin generative AI are expensive, costing tens or even hundreds of millions of dollars to develop, so not many companies have the necessary resources to create their own. This makes deep-pocketed cloud infrastructure providers -- including Google Cloud -- the odds-on favorites to profit from this growing secular tailwind.
While estimates vary, numerous Wall Street analysts and pundits suggest the generative AI market will put trillions of dollars of spending in play. Given its position as the fastest-growing of the major cloud infrastructure providers and an early adopter of LLMs and generative AI, Alphabet is standing at the crossroads to earn its share of the financial windfall resulting from AI.
Furthermore, the hat trick of digital advertising, cloud computing, and AI adoption should give Alphabet all the traction it needs to rejoin the $2 trillion club.
2. Meta Platforms
Meta Platforms (META 0.11%) has a current market cap of $800 billion, which means it's further away from this lofty $2 trillion goal. While it still seems destined to join the club, it will take a bit longer. The stock would need to increase by roughly 150% from Thursday's closing price to surpass this benchmark, which amounts to approximately 10% gains annually -- which is still well within the realm of possibility. This is especially true when you consider that Meta Platforms stock has gained 472% over the preceding 10 years.
One of the most significant headwinds for Meta -- like Alphabet -- has been the plunge in digital ad spending on its platform. Furthermore, since advertising historically represents more than 98% of Meta's revenue, the pinch in marketing spend last year hit the company even harder.
Meta Platforms controls an estimated 20% share of the worldwide digital advertising market, according to Digiday, making it the No. 2 provider of online advertising, second only to Google. And like its industry-leading rival, an improving economy and commensurate uptick in ad spending will drive its revenue, profits, and ultimately its stock price, higher.
While Meta Platforms doesn't have a cloud infrastructure service to benefit from AI, the company does have the world's leading social media business, which boasts more than 3 billion users daily and 3.88 billion monthly. This gives Meta a treasure trove of data to work with, though its current LLM -- dubbed Llama -- was reportedly trained on publicly available data.
While Llama is free to individual users, Meta is charging hyperscale cloud infrastructure providers to integrate it into their cloud services. Furthermore, the company is developing a host of offerings based on the technology, including productivity apps, chatbots, and AI-based tools that help make ad campaigns more effective. While this approach to AI may be less lucrative, it will still help Meta Platforms profit from the AI revolution.
The one-two punch of AI and rebounding digital ad spending will put Meta Platforms on the path to a $2 trillion market cap over the coming decade.
