Advances in technology over the past two decades have shifted the landscape in terms of the world's most valuable companies. Once upon a time, industrial and energy stalwarts led the way, but those days are long gone.
For instance, ExxonMobil and General Electric ruled the roost in 2005, with market caps $375 billion and $362 billion, respectively. Now, just 20 years later, technology leaders top the charts. Not coincidentally, many of those companies are at the forefront of artificial intelligence (AI).
Despite those advances, there are still only four companies valued at $3 trillion or more, and all are household names. Nvidia made its fortune as an AI chipmaker and currently leads the field at $4.3 trillion. Software and cloud titan Microsoft is close behind with a market cap of $3.8 trillion. iPhone maker Apple and search giant Alphabet round out the group, valued at $3.5 trillion and $3 trillion, respectively.
With a market cap of $1.9 trillion, it might seem a bit early to be putting forth Meta Platforms (META 2.11%) for membership in the $3 trillion club, yet in some ways it seems inevitable. Its recent performance and AI strategy have positioned the company for future success, as evidenced by its stock price gains of 537% (as of this writing) since the dawn of generative AI in early 2023 -- and this could be just the beginning, ensuring the social media kingpin's admittance into this exclusive fraternity.
Image source: Getty Images.
A captive audience
Meta has more than 3 billion daily users, which provides the target market for the company's digital advertising. It has a long history of using machine learning to surface relevant content and ensure its targeted advertising meets its mark. Advances in generative AI have increased its advantage, with Meta having developed a collection of AI-powered tools for marketers to speed up and simplify the process.
There's no denying the results. In the second quarter, revenue climbed 22% year over year to $47.5 billion, fueling diluted earnings per share (EPS) that jumped 38% to $7.14. CEO Mark Zuckerberg pulled back the curtain, saying that AI is "unlocking greater efficiency and gains across our ads system ... [driving] roughly 5% more ad conversions on Instagram and 3% on Facebook."
NASDAQ: META
Key Data Points
At the same time, its relentless user growth continued, as its family of social media platforms -- Facebook, Instagram, Threads, and WhatsApp -- increased its collective audience to 3.48 billion, up 6% year over year.
The company's ability to continually increase its user base and expand its advertising has fueled its continued success.
The path to $3 trillion
Meta has a market cap of roughly $1.93 trillion (as of this writing), so it will take a stock price increase of roughly 55% to lift its value to $3 trillion. Wall Street's estimates have the company generating revenue of $196 billion in 2025, giving the stock a forward price-to-sales ratio (P/S) of about 10. Assuming its P/S remains constant, Meta will need to generate revenue of roughly $305 billion annually to support a $3 trillion market cap.
Furthermore, Wall Street is currently forecasting growth for Meta of nearly 15% annually over the coming five years. If the company can achieve that benchmark, it could surpass a $3 trillion market cap as early as 2029.
That seems conservative, since it has grown its trailing-12-month revenue by more than 1,000% over the past 10 years, and by 22% in the second quarter. This suggests it will make the grade even sooner.
Lastly, at 27 times earnings, Meta's valuation is similar to that of the S&P 500 -- yet it has increased by 729% over the past 10 years, well ahead of the S&P 500, which gained just 238%. That's why Meta Platforms stock is a buy.
