U.S. stock exchanges host seven companies with a valuation of $1 trillion or more, but only five are currently in the exclusive $2 trillion club:
- Apple: $3.38 trillion
- Nvidia: $3.32 trillion
- Microsoft: $3.05 trillion
- Alphabet: $2.10 trillion
- Amazon: $2.07 trillion
I think Meta Platforms (META +1.33%) could be the next company to join that list. The social media giant is quickly becoming a leader in the artificial intelligence (AI) race, and it's using that technology to create exciting new features for Facebook, Instagram, and WhatsApp.
Meta has a market capitalization of $1.45 trillion, so its stock has to gain 38% from here for the company to cross the $2 trillion milestone. Here's how it could happen by 2026.
Image source: Getty Images.
AI will be a key part of Meta's future
Meta has the largest audience in the world with 3.29 billion daily active users across its family of apps. The company generates most of its revenue by selling advertising slots to businesses that want to reach that audience, and the longer each user spends on platforms like Facebook and Instagram each day, the more ads they will see. That translates into more revenue for Meta.
AI-powered content recommendations are one way the company is increasing engagement. AI algorithms learn what each user likes to see, and it curates their Facebook and Instagram feeds accordingly. Meta CEO Mark Zuckerberg says this strategy led to an 8% increase in the amount of time users spend on Facebook this year, and a 6% increase for Instagram.
Meta also offers a suite of AI tools for advertisers, which helps them rapidly craft engaging campaigns. Zuckerberg says more than 1 million businesses used AI to create 15 million ads last month alone, which led to a 7% increase in conversions. Meta's goal is to eventually have a prompt-based system where businesses can describe the type of ad they want to make, and the audience they wish to target, and AI will handle the entire process. That could turn even the smallest business into a marketing powerhouse.
Part of increasing user engagement and attracting advertisers also involves creating new features. Earlier this year, Meta launched an AI-powered virtual assistant called Meta AI, which users can access through all of its apps. It's capable of answering complex questions, generating images, and it can even join your group chat to settle debates or recommend fun activities.
Meta AI already amassed over 500 million monthly active users. But more importantly, it lays the foundation for upcoming features like Business AI, which will provide a unique virtual agent to every merchant on Meta's apps. Business AI will handle incoming messages from customers and potentially even process sales, which will create new opportunities for Meta to generate revenue.
Meta just had a record quarter, but AI spending is set to soar
Meta generated a record $40.6 billion in total revenue during the third quarter of 2024 (which ended Sept. 30). It also delivered $15.7 billion in net income (profit) which was another record, and that figure was up 35% from the year-ago period.
Increasing profitability has been the key driver behind the 527% surge in Meta stock since it bottomed in October 2022. However, the company plans to invest heavily in AI data centers and graphics processing units (GPUs) from suppliers like Nvidia, which could be a headwind for its earnings.
Features like Meta AI are powered by the company's Llama large language model (LLM), which is quickly becoming one of the most advanced in the entire industry. The current Llama 3 models were trained on around 16,000 GPUs, but Zuckerberg says Llama 4 is already in the works, and it's going to require over 100,000 of Nvidia's H100 GPUs (or equivalents).
Nvidia's chips can often sell for up to $40,000 each, so Meta is making an enormous financial commitment. In fact, the company told investors its capital expenditures (which mostly relate to AI) will come in between $38 billion and $40 billion for the whole of 2024 -- and that forecast has been raised four times this year. The company intends to spend "significantly" more in 2025.
NASDAQ: META
Key Data Points
Meta's (mathematical) path to the $2 trillion club by 2026
Meta generated $21.23 in earnings per share over the last four quarters, and based on its stock price of $567 as of this writing, that places it at a price-to-earnings (P/E) ratio of 26.8.
That means Meta stock would have to climb by 20.5% just to trade in line with the Nasdaq-100 technology index, which sits at a P/E ratio of 32.3. Considering Meta is delivering record financial results, combined with its leadership in the AI race, I think it's reasonable to expect the company to trade in line with its peers in the tech sector.
After all, Meta's average P/E over the last 10 years is 37.7.
If Meta's P/E ratio does rise to 32.3, that alone would lift its market cap to $1.75 trillion. Plus, Wall Street analysts (according to Yahoo!) expect the company to generate 14.2% earnings growth in 2025 despite all of its spending, which would result in a market cap of $1.99 trillion if it maintains that same P/E ratio.
That means any amount of earnings growth in 2026 would propel Meta into the $2 trillion club. The company might even get there next year depending on how quickly it can start monetizing features like Meta AI and Business AI, because that could be a source of upside to Wall Street's earnings forecast.
