Artificial intelligence (AI) is a transformational technology. Because of AI, some established businesses will develop additional sources of revenue, and others will struggle to find a place in the new business and tech environment.
Still, other companies, often not thought of as AI stocks, could experience rapid growth and possibly emerge out of nowhere to grow to a market cap of $1 trillion and beyond. Although it's difficult to accurately predict which growth stocks will achieve such a milestone, three Motley Fool contributors have ideas on which of these less obvious AI stocks can grow their market cap beyond $1 trillion.
An old-school tech stock profits from the AI revolution
Jake Lerch (Oracle): My pick is Oracle (ORCL 2.02%), thanks to its resurgent cloud business that's being fueled by skyrocketing demand for artificial intelligence data servers.
On the company's most recent earnings call (for the three months ending on Feb. 29), Oracle chairman Larry Ellison was very straightforward in admitting that Microsoft's explosive cloud growth is driving knock-on success for Microsoft's suppliers, including Oracle. "We're building 20 data centers [for] Microsoft and Azure. They just ordered three more data centers this quarter," Ellison said.
In turn, Oracle's overall revenue rose 7% year over year in its most recent quarter to $13.3 billion. Better yet, management gave upbeat guidance, indicating that future sales goals may be met earlier than expected, as the company's cloud services segment is growing at a 25% year-over-year rate.
As for the company's stock, it might be a surprise that Oracle is already America's 20th-largest company with a market cap of $345 billion, making it more than twice the size of iconic companies like Verizon, Caterpillar, and American Express.
What is perhaps more shocking, particularly to those of us who lived through the stock's utter collapse in the wake of the dot-com bubble, Oracle has actually been a solid investment for more than a decade. In fact, Oracle's shares have outperformed the S&P 500 over the last decade.
ORCL Total Return Level data by YCharts
So, it might be time for investors to give Oracle another look. Thanks to its red-hot cloud business, this Web 1.0 name could be on the fast track to a $1 trillion market cap.
TSMC doesn't get the credit it deserves
Justin Pope (Taiwan Semiconductor Manufacturing): Semiconductors have become the building blocks of AI; the chips power the massive computers needed to crunch the data to train AI models. Nvidia, the current king of AI chips with most of the market share, is doing just over $60 billion in companywide sales annually. CEO Lisa Su of Advanced Micro Devices, Nvidia's rival, believes the AI chip market will grow as large as $400 billion over the coming years.
Despite being well-known chip giants, neither Nvidia nor AMD actually manufacture their chips. That job belongs to manufacturing specialists like Taiwan Semiconductor Manufacturing (TSM 1.26%). TSMC is the world's largest semiconductor manufacturer, with an estimated 56% share of the world's chip production. As the market leader, you can be sure that TSMC is the go-to for these new, highly advanced chips powering the latest innovations like AI.
The market isn't exactly sleeping on TSMC stock. After all, the company is worth over $600 billion today. However, it's still reasonably priced at 23 times analysts' estimated 2024 earnings of $6.17 per share.
Think about it. If semiconductor demand pushes the AI chip market to such massive growth (several times its current size if Lisa Su is correct), much of that business will trickle down to TSMC. It's not a stretch to see the company's earnings doubling over the next decade, which would be more than enough to push TSMC past a trillion-dollar market cap.
The future looks bright for the world's leading chip fab, and a trillion-dollar valuation seems more like a matter of when not if.
This travel stock should continue to book AI-driven gains
Will Healy (Airbnb): Most consumers see Airbnb (ABNB 0.75%) as a tourism company, and understandably so. It has turned the vacation rental industry on its head, changing any residence into a potential vacation property. Moreover, it has reinforced this reputation by offering activities that might appeal to vacationers.
Nonetheless, it would likely surprise many customers and even some investors to know that Airbnb probably owes its success to AI. For one, it's not a first mover in this space. That claim belongs to Expedia's Vrbo. Furthermore, unlike a hotel chain like Hilton, it doesn't own the properties it helps lease.
In reality, Airbnb is little more than a website for listings with a high level of name recognition. The company fosters its competitive advantages through AI. The technology helps with challenges such as determining proper pricing levels in a given area or estimating the reputations of prospective tenants.
Airbnb has also found unusual applications for AI. The technology plays a role in enforcing holiday activity restrictions and estimating the likelihood a tenant might violate such rules.
Also, Airbnb has begun testing its AI chatbot to handle many customer support inquiries. To this end, it recently bought GamePlanner, a company that can presumably make AI experiences on Airbnb seem more human.
Moreover, the company might be closer to a $1 trillion market cap than some might assume. Thanks to its 7.7 million listings and 448 million nights and experiences booked in just the fourth quarter of 2023 alone, the stock has already grown to a market cap of $105 billion -- meaning it has to double roughly 3.2 times to take the market cap to $1 trillion.
Admittedly, such a feat will likely take a few years since the market cap will still have to grow by almost ninefold to achieve that milestone. Also, Airbnb's P/E ratio of 23 was skewed lower by a one-time income tax benefit, making its true earnings-based valuation higher than it might appear.
However, its price-to-sales ratio of 11 is not far from record lows, a factor that should serve as a catalyst as revenue and earnings rise further. With AI continuing to increase the company's productivity, the $1 trillion market cap should eventually be within reach.
