Few clubs are as exclusive as the $1 trillion club. It contains only five members. They're all companies that trade on U.S. stock exchanges and have market caps with at least 12 zeros.
However, there are a handful of companies that just might break into their ranks. One artificial intelligence (AI) stock, in particular, appears to be most likely to beat Tesla (TSLA +0.96%) in joining Apple (AAPL 0.01%), Microsoft (MSFT 0.60%), Google parent Alphabet (GOOG 0.21%) (GOOGL 0.41%), and Nvidia (NVDA +2.59%) in the $1 trillion club.
An easy pick
It's not hard to identify which stock is in the best position to reach the $1 trillion threshold. Meta Platforms' (META +0.22%) market cap currently hovers around $800 million. That puts it well ahead of Tesla with its market cap of under $700 million.
NASDAQ: META
Key Data Points
Only a few weeks ago, Meta and Tesla were running neck-and-neck. What happened? Quarterly earnings updates -- one good and one bad.
Tesla went first, announcing its third-quarter results on Oct. 18, 2023. Profits and gross margin fell. CEO Elon Musk warned that the company's electric Cybertruck wouldn't generate significant positive cash flow until as long as 18 months after production begins. Tesla stock promptly tumbled.
NASDAQ: TSLA
Key Data Points
One week later, Meta had its turn. The company's revenue jumped 23% year over year to $34.1 billion. Earnings skyrocketed 164% higher to nearly $11.6 billion, better than expected. Meta projected even stronger revenue for the fourth quarter of 2023.
How Meta's market cap could hit $1 trillion
A single positive quarter won't be enough for Meta to join the $1 trillion club. However, I think there's a clear path for how the company will be able to do so.
First, Meta will need to continue increasing the monetization of Reels. The video service has already helped boost time spent on Instagram by more than 40%, according to CEO Mark Zuckerberg. Reels also reached the milestone of being net neutral to overall ad revenue sooner than expected. Meta should be able to make Reels even more profitable by making its ads more interactive and giving businesses more opportunities to place ads.
Second, the company's AI initiatives will need to pay off. Zuckerberg said in Meta's Q3 earnings call that "AI will be our biggest investment area in 2024." He noted that AI-driven feed recommendations have increased time spent on Instagram and Facebook by 6% and 7%, respectively. AI tools for advertisers could also play a key role in fueling growth.
Third, Meta will have to capitalize on its big opportunity in business messaging. Zuckerberg referred to business messaging as the company's "next major pillar" in the Q3 call. There's a major tie-in with AI on this front. Meta hopes to deploy AI to help businesses correspond with customers on the company's messaging platforms.
I suspect that if Meta executes well in these three areas, its market cap will hit $1 trillion over the next one to three years. We can't leave out another potential long-term growth driver for the company, though. Meta remains committed to developing the metaverse despite some investors' concerns that it's a fool's errand.
The company's recently launched Quest 3 is the first mainstream mixed-reality headset on the market. Meta just rolled out the next generation of its Ray-Ban Meta smart glasses. It's also continuing to build new metaverse software applications. New worlds have been added to its Horizon metaverse. The company is planning to enable Horizon to be used on mobile devices as well. These and future metaverse efforts just might start paying off and help Meta get to that magic $1 trillion mark.
Don't discount Tesla or Buffett, though
However, it's possible that Meta could stumble. Also, don't discount the possibility that Tesla roars back or that Warren Buffett's Berkshire Hathaway (BRK.A 1.08%) (BRK.B 1.14%) reaches a market cap of $1 trillion first.
NYSE: BRK.B
Key Data Points
Berkshire is nearly as close as Meta is to joining the $1 trillion club. Buffett has a massive cash stockpile that he could put to work if he finds the right opportunities. A surge by Apple would also push Berkshire stock higher since the tech giant ranks as Berkshire's largest equity investment by far.
As for Tesla, Musk tweeted last week that he thinks the company can achieve a valuation of $4 trillion if it can "knock the ball out of the park several times." One potential home run for Tesla could be to launch a successful robotaxi service.
Berkshire or Tesla could leap past Meta. For now, though, Zuckerberg's company appears to be in the driver's seat to become the next member of the $1 trillion club.
