Shares of Palantir Technologies (PLTR 1.90%) have quadrupled in value during the past year and the company currently has a market capitalization of $422 billion. I think Shopify (SHOP 4.45%) and AppLovin (APP -5.50%) can top that figure by 2030. Here's what my prediction implies for shareholders:
- Shopify is currently worth $205 billion. To achieve a market value of $425 billion by 2030, the stock must advance 107%, which implies annual returns of approximately 16% over the next five years.
- AppLovin is currently worth $203 billion. To achieve a market value of $425 billion by 2030, the stock must advance 109%, which implies annual returns of approximately 16% over the next five years.
It's worth mentioning that billionaire Philippe Laffont -- a successful hedge fund manager that crushed the S&P 500 (^GSPC 1.07%) during the last three years -- expects Shopify and AppLovin to rank among the 20 largest companies in the world by 2030. Here's what investors should know about these artificial intelligence stocks.
Image source: Getty Images.
Shopify: 107% upside implied over the next 5 years
Shopify reported excellent financial results in the second quarter, beating estimates on the top and bottom lines. Revenue increased 31% to $2.6 billion as growth accelerated across North American, Europe, and the Asia-Pacific region. Non-GAAP net income increased 35% to $0.35 per diluted share, an acceleration from 25% growth in the previous quarter.
The investment thesis for Shopify centers on its ability to simplify e-commerce. Its platform lets merchants manage their businesses across physical and digital storefronts from a single dashboard. The company also provides adjunct tools and financial services, including solutions for payment processing, advertising, and logistics. Shopify has the most popular e-commerce software products on the market, according to research company G2.
Management sees particularly important growth opportunities with international merchants and business-to-business (B2B) commerce, and the company is executing on both. Total gross merchandise volume (GMV) increased 30% in the second quarter, but international GMV increased 42% and B2B GMV increased 101%. "We're bringing the biggest brands in the planet to the platform through our unified commerce offering," said President Harley Finkelstein.
Importantly, Shopify is also leaning into demand for artificial intelligence (AI). The company earlier this year introduced an AI tool that constructs entire online storefronts from a few keywords. Beyond that feature, Shopify's suite of AI capabilities (called Shopify Magic) also includes solutions that help sellers write product descriptions, generate media content, and respond to customer inquiries.
Wall Street expects Shopify's earnings to increase at 30% annually in the next three to five years. That makes the current valuation of 88 times earnings look expensive. But if Shopify meets that consensus estimate, its price-to-earnings multiple could fall to 49 while its market value hits $425 billion by mid-2030. In that scenario, Shopify can surpass Palantir's current market value within five years.
AppLovin: 109% upside implied over the next five years
AppLovin reported very strong financial results in the second quarter. Revenue increased 77% to $1.2 billion and GAAP net income increased 169% to $2.39 per diluted share. The company also completed the sale of its mobile apps business, which will let it focus on its core advertising business in the future. Management expects advertising revenue to grow 59% in the third quarter.
The investment thesis for AppLovin centers on its differentiated recommendation engine, called Axon, which leans on sophisticated artificial intelligence models to match advertiser demand with the most appropriate publisher supply. Morgan Stanley analysts have called it a "best-in-class machine learning ad engine" and have recognized AppLovin as one of the ad tech companies best positioned to benefit from generative AI.
Additionally, while AppLovin has traditionally focused on helping mobile developers market and monetization their applications, the company has recently expanded into e-commerce advertising more broadly. AppLovin also launched a self-service platform called Axon Ads Manager in October. CEO Adam Foroughi says, "Early pilots have shown positive outcomes for a range of advertisers, suggesting that any business in any vertical can harness the power of platform."
Wall Street expects AppLovin's adjusted earnings to grow at 35% annually through 2028. That makes the current valuation of 85 times earnings look relatively expensive. However, if earnings increase at 35% annually through mid-2030, the company can achieve a market value of $425 billion while its valuation drops to a more reasonable 39 times earnings. In that scenario, AppLovin passes Palantir's current market value within five years.
