Its own stock holdings are discussed so often that it's easy to forget Berkshire Hathaway (BRK.A +1.44%) (BRK.B +0.98%) is a publicly traded outfit in and of itself. And a big one. With a market cap of nearly $1.1 trillion, in fact, Berkshire is the market's ninth-biggest name, right behind Taiwan Semiconductor Manufacturing, and right in front of electric vehicle outfit Tesla.
As veteran investors can verify, though, this won't be the case forever. Change is constant. Today's biggest companies won't be tomorrow's. And two names in particular are likely to outperform Berkshire Hathaway shares just within the next five years, making both of them solid buys for growth-seeking investors. Here's a closer look at two stocks that should be worth more than Berkshire in five years.
Image source: Getty Images.
1. Palantir Technologies
It's such a commonly suggested stock pick that it's almost become cliché. Nevertheless, Palantir Technologies (PLTR +2.44%) is on a growth spree that will very likely lead it to surpass Berkshire's size by 2030.
But what exactly is this company you've probably heard plenty about? It's an artificial intelligence (AI) player, but that description arguably understates what Palantir brings to the table. It doesn't simply offer well-informed text-based conversation with users in the vein of OpenAI's ChatGPT or Google's Gemini. Palantir Technologies provides a full-blown decision-making platform for government agencies as well as private corporations, turning mountains of specialized digital data into actionable information. The U.S. Centers for Disease Control and Department of Health and Human Services, for instance, tapped Palantir for help in curbing the spread of the COVID-19 pandemic and distributing COVID-19 vaccines.
Now, this stock's expensive on a valuation basis. Wildly expensive. Shares are trading at nearly 90 times this year's expected revenue, and at 240 times this year's analyst-projected earnings of $0.64 per share. For comparison, the S&P 500's current price/sales ratio is around 3.2, while its price/earnings ratio is in the ballpark of 25. This steep valuation is a big reason the stock's so volatile; investors are constantly struggling to come up with any reasonable price when the usual pricing standards simply don't apply.
NASDAQ: PLTR
Key Data Points
But that day is coming.
Take a step back and look at the bigger picture. Despite its clear value to them, only about 10% of U.S. businesses are actually using any sort of artificial intelligence to improve efficiency. More and more are starting to, though. An outlook from Precedence Research suggests the worldwide decision-making software market is set to grow at an annualized pace of nearly 16% through 2034.
Palantir Technologies' current market capitalization is a mere $360 billion, so it's clearly got a lot of work to do before catching up with and lapping Berkshire Hathaway. Being the biggest name in the business, Palantir is well-positioned to capture more than its fair share of the growth predicted by Precedence, subsequently growing its bottom line much faster than its top line now that its business has reached critical mass.
2. Alibaba Group
The other outfit poised to be bigger than Berkshire five years from now is Alibaba Group (BABA 0.31%), although with a market cap of only $300 billion, it's got even more ground to cover than Palantir.
The opportunity to do so is there, though.
You most likely know Alibaba as an e-commerce powerhouse; its Tmall and Taobao collectively account for about one-third of China's online shopping. It's doing pretty well in neighboring countries, too. The company's even making respectable inroads in the western half of the world, connecting China's manufacturers directly with consumers beyond the Pacific rim. All of this business should continue growing too, extending last quarter's domestic revenue growth of 10%, and international growth of 19%, year over year.
What's likely to catapult Alibaba past Berkshire Hathaway, however, isn't its consumer-facing shopping (and related) businesses. It's artificial intelligence. The company recently waded knee-deep into AI waters, and will likely be chest-deep in them within a couple of years.
Part of this entry into the global AI race is rooted in the creation of its own AI-powered conversational chat platform called Qwen. Although OpenAI's ChatGPT and Google's Gemini were first to the market, in some regards, waiting to see how those platforms worked ended up being a savvy call. While it may not be as fast as other similar platforms, it was great at most common commercial uses, and handles several different languages like a champ. And unlike most alternatives, Qwen is also open source software. That just means developers can easily explore its coding and tweak their use of the tool, making it more marketable.
In this vein, rather than using an American-made option, Apple's newest AI-capable iPhones sold in China will use AI software designed by Alibaba. This could become the norm for the enormous market consisting of 1.25 billion mobile phone owners (according to numbers from industry research outfit GSMA), 1.17 billion of whom are also mobile internet users.
NYSE: BABA
Key Data Points
The other driver of Alibaba's near-term growth is also AI-related. That is, it's developing its own AI processing chips that will not only wean it from dependence on U.S. chipmakers like Nvidia or Intel, but will also satisfy increasingly isolationist Beijing.
And China's efforts to develop a fully home-grown AI industry are only in their infancy. Morgan Stanley suggests the country's artificial intelligence (and related) businesses could be generating $1.4 trillion in annual revenue by 2030, producing a 52% return on any AI investment made in the meantime, with a breakeven on these investments materializing as soon as 2028.
Alibaba stands to benefit from this massive tailwind more than any other outfit.
Don't lose perspective -- it doesn't have to be an either/or situation
Don't misread the message. While Alibaba and Palantir may grow to be bigger than Berkshire within the next five years, that doesn't mean Berkshire Hathaway is a bad investment, or that it also won't be bigger than it is now by 2030. It almost certainly will.
If you're looking for above-average growth, though, you'll want to think and act more aggressively with names like Palantir Technologies and Alibaba, accepting the above-average risk and above-average volatility they bring to the table. For most growth-seekers, it's worth it.
Of course, there's also nothing wrong with hedging your bet and owning a piece of all three companies.
