Change is perhaps the only certainty on Wall Street. Due to factors such as innovation, competition, mergers and acquisitions, bankruptcies, and legal judgments, the puzzle pieces that make up the largest publicly traded companies are constantly in flux.
When 2004 came to a close, ExxonMobil was the largest publicly traded company in the S&P 500, with Citigroup and General Electric also in the top 10. Today, Microsoft (MSFT +1.03%) is the only member of the end-of-2004 top 10 that's still among America's largest publicly traded companies.
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Since the midpoint of 2023, we've witnessed Apple (AAPL 0.27%), Microsoft, and semiconductor colossus Nvidia (NVDA +4.39%) all surpass the $3 trillion valuation plateau. Although Nvidia would seem like the surest bet to reach the psychologically important $5 trillion level given the rise of artificial intelligence (AI), a dark-horse candidate may have the clearest path to become Wall Street's first $5 trillion company.
Nvidia is battling against history, which has a flawless track record
On one hand, there's no denying that Nvidia has enjoyed a textbook operating expansion. The company's Hopper (H100) graphics processing units (GPUs) and successor Blackwell chips have been the preferred options for businesses wanting to run generative AI solutions and train large language models in their high-compute data centers.
With demand for GPUs overwhelming supply, Nvidia has been able to command $30,000 to $40,000 for its Hopper chip, which is up to four times as much as Advanced Micro Devices has charged customers for its Instinct MI300X GPU. Having otherworldly pricing power helped to push Nvidia's gross margin to as high as 78.4% last year.
NASDAQ: NVDA
Key Data Points
While the long-term outlook for AI remains encouraging and this technology has real-world applications in most industries around the globe, Nvidia's chances of becoming Wall Street's first $5 trillion company are likely going to be thwarted by history.
Roughly three decades ago, the internet began going mainstream and offered businesses a new way to connect with potential customers. Though the internet did, eventually, alter the growth trajectory for corporate America is a positive way, it took years before businesses really understood how to harness these new sales and marketing channels.
Including the internet, every game-changing technology or innovation for 30 years has navigated its way through an early stage bubble. In simpler terms, investors have consistently overestimated how quickly a new technology/innovation would be adopted or gain widespread utility. With most companies lacking clear game plans as to how they'll maximize the return on their AI investments, it sets artificial intelligence up to be the next in a long line of bubbles.
Since no company has benefited more directly from the AI revolution than Nvidia, the logical expectation is that its stock would be hit the hardest. Historic precedent makes it unlikely that Nvidia ascends to a $5 trillion valuation first.
Image source: Amazon.
This dark-horse candidate has a clear path to become America's largest public company
If history were to rhyme and the AI bubble bursts, it would also be bad news for Microsoft, which has been investing heavily in an artificial intelligence-driven future. Although Microsoft's operating cash flow isn't as overwhelmingly reliant on AI as Nvidia, being the first to reach a $5 trillion valuation would be a stretch.
The same can be said for Wall Street's other $3 trillion public company, Apple. Though Apple's Services segment continues to grow by a double-digit percentage, its physical device sales, including iPhone, have stagnated for two years. Apple stock is already trading at one of its priciest valuations in a decade, which leaves little room for its valuation to rise by another $1.4 trillion.
The "Magnificent Seven" component that appears to have the clearest path to a $5 trillion market cap is e-commerce juggernaut Amazon (AMZN 1.15%).
When most consumers and investors hear the Amazon name, they think of its dominant online marketplace. Last February, eMarketer estimated that Amazon would account for just over 40% of U.S. online retail sales in 2024. While this online retail platform has been the face of Amazon for nearly three decades, e-commerce plays a minimal role in terms of cash flow generation and operating income.
NASDAQ: AMZN
Key Data Points
The lion's share of Amazon's growth potential (specifically growth in cash flow) originates from its ancillary operating segments, with Amazon Web Services (AWS) at the front of the pack.
Based on data from tech-analysis firm Canalys, AWS is the world's leading cloud infrastructure service platform, with an estimated 33% share of total cloud spending during the third quarter of 2024. For context, Amazon's share of spending among cloud-service providers is more than Microsoft's Azure and Alphabet's Google Cloud, combined -- and these are the No's 2 and 3 in global cloud-service spending.
Even though AI has played a role in AWS's growth, enterprise spending on cloud services was growing at a steady double-digit pace long before AI became the hottest thing since sliced bread on Wall Street. With enterprise cloud-service spending still in its relatively early stages of expansion, Amazon can expect substantially higher margins from this segment to meaningfully boost its cash flow.
Beyond AWS, Amazon's advertising services and subscription services (e.g., Prime) segments are also respectively growing by double digits. Amazon's push into exclusive sporting events (Thursday Night Football and NBA streaming packages) should improve demand for advertising, as well as support its subscription pricing power.
The key point is that, unlike Microsoft and Nvidia, Amazon wouldn't be dragged down by the AI bubble bursting thanks to its abundance of other catalysts.
Lastly, Amazon remains historically inexpensive. Throughout the 2010s, investors willingly paid 23 to 37 times year-end cash flow to own shares of the company. But as of the closing bell on Jan. 10, Amazon's shares are valued at just 13.5 times consensus cash flow for 2026. If Amazon were to reach the median year-end multiple to cash flow it traded at consistently from 2010 through 2019, it would become Wall Street's first $5 trillion company.
