Berkshire Hathaway (BRK.A +0.16%)(BRK.B +0.14%) is the largest company in the stock market not in the technology sector. As of this writing, the conglomerate led by Warren Buffett had a market cap of about $1.05 trillion -- a tremendous accomplishment for a business built on value investing principles and long-term compounding.
There are nine members of the trillion-dollar club in the U.S. stock market right now (Berkshire is No. 9). But it's safe to say that over the next decade, there will likely be many companies that achieve a 13-figure valuation.
For many, doing so wouldn't be too much of a stretch. For example, Walmart and Visa currently have valuations of $776 billion and $675 billion, respectively, so both could get to $1 trillion over the next decade with even modest annualized returns.
Image source: The Motley Fool.
On the other hand, there are some that I think have an excellent chance of getting there through excellent stock performance. Here are two in particular that would need to deliver multibagger returns to investors in order to join the trillion-dollar club, and that I feel have a strong chance of getting there.
A great environment for banking?
Bank of America (BAC 2.73%) has a $353 billion market cap today, and is one of the largest banks in the world. To achieve a $1.05 trillion market cap like Berkshire has, it would require the stock to average about an 11% annual gain over the next decade.
This is certainly within the realm of possibilities, as I feel the conditions for the banking industry will be generally favorable -- at least for the next few years. Most economists predict that the general direction of interest rates will be lower over the coming years, and this should help boost loan demand and reduce deposit costs. Plus, the Trump administration is not only likely to generally loosen regulations going forward, but also campaigned on a 15% corporate tax rate, which would be a big benefit to Bank of America's bottom line.
NYSE: BAC
Key Data Points
CEO Brian Moynihan and his team have done an excellent job of embracing modern banking technology and creating a more efficient operation, and the bank's overall efficiency and return on assets (ROA) is likely to trend in the right direction as a result. In short, a combination of excellent leadership and favorable economic and political conditions could certainly lead to a trillion-dollar valuation.
One caveat is that Bank of America is one of the larger stock positions in Berkshire's portfolio, so if it performs well, it would also have the effect of raising Berkshire's market value. But even so, if the economic environment cooperates, Bank of America is a well-run institution and could certainly deliver excellent returns over the next decade.
An excellent track record of outperformance
Advanced Micro Devices (AMD +11.44%), better known simply as AMD, has performed quite well over the past few months, rebounding sharply from the April lows. But I think it's just getting started. The chipmaker has a current market cap of $233 billion, so it would need a roughly 16% annual gain over the next decade to reach Berkshire's $1.05 trillion. And I think it has an excellent shot of getting there.
AMD often gets ignored by investors because it is a distant second place to Nvidia when it comes to the high-momentum data center GPU market. But there are a few things to keep in mind.
For one thing, the data center accelerator market is a massive and fast-growing one, expected to reach $240 billion in global sales volume by 2030. So, even if AMD can boost its market share by just a few percentage points, it would be a big win for the company's top line.
It's also important to realize that while data center chips are the fastest-growing part of the business right now, there's a lot more that AMD does. For one thing, it has steadily been taking share from Intel in the PC and laptop processor market. It also makes chips for autonomous vehicles, an area expected to grow rapidly over the next decade or so.
Ever since CEO Lisa Su took the reins in late 2014, it has been a mistake to bet against AMD. During her tenure, AMD has delivered a staggering 4,180% gain for investors (about 40% annualized). While I don't exactly think that performance level will repeat itself, it wouldn't need to for AMD to reach a trillion-dollar valuation.
Will these two companies join the trillion-dollar club?
To be clear, I'm predicting both of these companies will have a higher market cap in 10 years than Berkshire Hathaway does today. Assuming Berkshire delivers 10% annualized returns over the next decade, which would be historically low for the conglomerate, it would have a market cap of about $2.7 trillion a decade from now, which obviously would be less likely for both of these companies to achieve (but it wouldn't be impossible).
The key point is that both Bank of America and AMD have fantastic leadership and a high probability of an excellent growth environment over the next decade. Of course, there's a lot that would need to go well for either to achieve a trillion-dollar valuation within the next decade, but the risk-reward dynamics of both stocks look excellent right now.
