Only 10 publicly traded companies are members of the $1 trillion club, meaning they have a market cap of at least $1 trillion. That number has grown considerably over the last few years as stocks have climbed to new all-time highs. Just five years ago only four companies had ever surpassed the milestone.
Investors should expect a handful of companies to join the ranks of the megacap stocks boasting a value above $1 trillion over the next five years. Many see Palantir Technologies (PLTR +1.10%), one of the hottest tech stocks on the planet, punching its card by 2030. However, there are a few reasons to doubt the company's ability to more than double its market cap within the next five years, despite its recent growth.
But another large-cap stock looks well positioned to continue growing over the next few years and that could push its value up to the $1 trillion mark by the end of the decade.
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Why Palantir will struggle to join the $1 trillion club
Palantir saw its stock price explode higher since introducing its Artificial Intelligence Platform (AIP) in 2023. AIP allows an organization to take advantage of large language models to interact with Palantir's core software using natural language. That's expanded the use cases of Palantir, enabling less technical users to take advantage of its powerful data oncology software. It also means an increase in contract size as more customers add AIP to their suite.
As a result, Palantir has produced accelerating revenue growth and expanding operating margins over the last two and a half years. Last quarter's revenue growth came in at an impressive 48% with an adjusted operating margin of 46%.
NASDAQ: PLTR
Key Data Points
Palantir's profitable sales growth is quite impressive. But the stock has zoomed higher much faster than its financial results would suggest it should. It's as if investors expect its ability to produce accelerating revenue growth to go on indefinitely. The reality is revenue growth will only prove more difficult in 2026 and beyond, if only due to the law of large numbers.
Palantir's current stock price values the company at more than 100 times revenue estimates over the next 12 months. There's no other company even close to Palantir's size that garners a valuation anything like that. Investors should expect multiple compression over the next five years. And as revenue growth slows down as Palantir gets bigger, the company is unlikely to grow large enough to reach $1 trillion by 2030.
The media giant with its sights set on $1 trillion
Only a handful of companies stand closer than Palantir to the $1 trillion club, but one of them has a much better shot at getting there by 2030. Netflix (NFLX 0.50%), with its $520 billion market cap, still looks a long way from that lofty value, but it's steadily making progress that could propel the stock to nearly double over the next five years.
Netflix's management is extremely systematic in its approach to growing the business. Despite consistent price increases over the last decade, it has managed to maintain a very high retention rate. So, even as subscriber growth in its more mature markets slows, it's still able to extract a ton of value out of its viewers. It reinvests a lot of the additional revenue from price increases and new subscribers into additional content to increase value for its users, but it also manages the company's spend toward a target operating margin each year. With relatively predictable revenue from the subscription business, it's usually able to hit the target.
The result is steady improvements in operating margin. Management is targeting 29.5% in operating margin for 2025, boosted by foreign-exchange tailwinds, after posting 26.7% margin last year.
Netflix's next leg up will come from advertising after launching an ad-supported tier of its streaming service in 2022. Ad sales are now a meaningful driver of revenue growth for the company, with advertising revenue on track to double from its relatively small base in 2025.
Netflix recently migrated to its own ad technology, giving it more control over measurement, targeting, and ad formats. It's also investing more in live programming, which will include advertisements for all subscribers. Both should ensure a healthy runway for ad growth over time, albeit with less predictability than subscriber revenue. Importantly, the market for connected TV ads still has a lot of room to grow as marketers are slow to shift ad spend from linear television.
NASDAQ: NFLX
Key Data Points
Netflix's management has set an internal goal of a $1 trillion market cap by 2030. While I'm not a fan of goals that are reliant on market sentiment, if management sticks to its plan to get to that valuation, it will likely achieve a $1 trillion valuation sooner or later. Namely, management expects to double its 2024 revenue and triple its operating income. That translates into $78 billion in revenue and a 40% operating margin. Both seem achievable given the trajectory the business is on currently.
Using excess cash flow to retire high interest debt and buy back shares should support earnings growth and a high valuation multiple of those earnings. An earnings multiple of around 30 times should be enough to support a $1 trillion valuation if Netflix hits those marks. I don't see any of those numbers as unreasonable for the company. Netflix has historically traded well above that valuation, and its pricing power and ad business should continue to propel meaningful revenue growth through the end of the decade.
