There are generally two distinct criteria used to gauge the onset of a new bull market: The market must increase by at least 20% from its cyclical low point, and it must set a new all-time high. The S&P 500 has already cleared the first hurdle, rising more than 28% from its low in early October. At this writing, it sits just 4% below its all-time high. Once it crosses that threshold, the new bull market will be official.
The market's recovery thus far has added some members to the exclusive group of U.S. companies with market caps of more than $1 trillion. Here are the members of this group as of the market close on Tuesday:
- Apple -- $3 trillion
- Microsoft -- $2.77 trillion
- Alphabet -- $1.65 trillion
- Amazon -- $1.52 trillion
- Nvidia -- $1.15 trillion
Two companies with strong ties to artificial intelligence (AI) are in contention to join that exclusive group: Meta Platforms (NASDAQ: META), with a market cap of roughly $835 billion, and Tesla (TSLA +0.78%) with a market cap of $759 billion. It's worth noting that both companies were formerly members, only to lose their qualification for the club during the economic downturn. Many investors believe it's merely a matter of time before they rejoin it.
I'm going to go out on a limb and predict that Meta and Tesla could both regain $1 trillion market caps in 2024. Here's why.
Image source: Getty Images.
The argument for Meta
Meta Platforms' stock has made a remarkable recovery this year, and evidence suggests the company still has room to run.
In the third quarter, Meta turned in a sterling performance. Revenue grew 23% to $34 billion, while earnings per share soared 168% to $4.39. Those results were supported by solid user metrics, as daily users and monthly users each increased 7% year over year to 3.14 billion and 3.96 billion, respectively. The company's expanding profits were the result of a strong emphasis on cost controls.
Marketers tend to reduce spending during periods of economic turmoil, which was a challenge for Meta last year. However, easing inflation and improving business conditions represent a vast opportunity.
According to a forecast by eMarketer, global digital ad spending will grow to $870 billion by 2027, which would be an increase of 58% from 2022 levels. Meta is the second-largest player in online advertising, with 23% of the market (behind only Alphabet), according to investment research provider Visible Alpha, so the company is well-positioned to ride these secular tailwinds higher.
NASDAQ: META
Key Data Points
Recent advances in AI will likely supercharge its growth. Meta has introduced AI-driven tools for advertisers, and Advantage+ is "one of the fastest-growing ad products" in the company's history. One recent test resulted in a 58% decrease in incremental cost per purchase while providing a 35% increase in return on ad spending.
These automation tools, which help simplify ad campaigns, are making the process more cost-effective -- which will no doubt help Meta attract and retain more advertisers.
As of the market close on Tuesday, Meta Platforms' market cap would need to rise by about 22% to hit the $1 trillion mark. Despite the worst downturn in more than a decade, Meta stock has gained nearly 19% annually over the past five years, so achieving a 22% gain over the next 13 months wouldn't be too much of a stretch.
Given its multiple growth drivers, a recovery in the advertising market, and robust secular tailwinds, Meta Platforms looks like a shoo-in to rejoin the $1 trillion club over the coming year.
The argument for Tesla
It's hard to argue with success, and Tesla has had that in droves. In 15 short years, the company has upended the automotive industry, driving electric vehicles into the mainstream.
In fact, Tesla's most popular vehicle, the Model Y, topped the list of the world's best-selling cars in both the first and second quarters of 2023. What makes that accomplishment even more notable is that Tesla was the first electric vehicle ever to achieve this honor, according to automotive industry publication GreenCars.
Further fueling demand, the U.S. government revised its criteria around what it took for a vehicle to qualify for the full federal EV tax credit of $7,500, and the Tesla Model Y and Model 3 both met the new standard. That, as well as existing state tax credits, helped make their prices comparable to vehicles with internal combustion engines in many places. This should continue to fuel robust demand.
NASDAQ: TSLA
Key Data Points
Over the long term, Tesla aims to increase its vehicle production at a compound annual rate of 50%. In 2023, Tesla is expected to manufacture 1.8 million cars, which would amount to growth of about 38%. The company has always said there would be up and down years, but its current growth rate is remarkable considering the economic headwinds of the past couple of years.
It's widely acknowledged that Tesla's full-self-driving (FSD) system isn't ready for prime time, though the company is making headway. Tesla built a $1 billion supercomputer it dubbed Dojo, which reportedly came online earlier this year and is gradually ramping up to full capacity. Dojo will process all the data gathered by Tesla vehicles, and use the latest AI tech to improve its automated driving systems.
Morgan Stanley believes Dojo will take FSD to the next level, hastening Tesla's move into mobility services and adding $500 billion to the company's enterprise value. The company also named Tesla its "top pick."
As of the market close on Tuesday, Tesla's market cap would have to rise by about 32% to hit $1 trillion. Despite its recent challenges, Tesla stock has achieved 59% growth (on average) over the past five years, so a 32% gain within the coming year is a (relatively) low bar for the company to clear.
Given its robust opportunity and history of performance, it's likely that Tesla will rejoin the $1 trillion club in 2024.
