The engine that drives the U.S. economy has changed dramatically over the past two decades. Case in point: Energy bellwether ExxonMobil and industrial stalwart General Electric were the two largest publicly traded companies by market cap in 2005, with values of $375 billion and $362 billion, respectively. Now, just 20 years later, technology companies at the forefront of artificial intelligence (AI) top the charts.
Only four companies have joined the ultra-exclusive $3 trillion club, and the names are immediately recognizable. Chipmaker Nvidia leads the list at $4.4 trillion (as of this writing), within striking distance of a new all-time high. iPhone maker Apple recently soared into second place at $3.9 trillion. Cloud and software provider Microsoft is right on Apple's heels, worth $3.8 trillion. Search pioneer Alphabet wraps up our quartet at $3 trillion.
With a market cap of $1.8 trillion, it might seem premature to suggest tech titan Meta Platforms (META +0.29%) is destined for membership in the $3 trillion club, but the evidence is clear. If this comes to pass, investors who buy shares today could pocket returns of 67% if Meta crosses the $3 trillion mark. Here's why I believe the writing is on the wall.
Image source: Getty Images.
A captive audience
Meta is the parent company behind several of the world's most popular social media platforms, including Facebook, Instagram, and WhatsApp. To stake its claim in the AI revolution, Meta tapped the information it compiles from the nearly 3.5 billion users who visit one of its platforms every day. This data helped the company develop its suite of Llama large language models (LLMs), which are among the most competitive in the industry. This positions Meta to profit from the tidal wave of AI adoption.
The company benefits from its foray into AI in other ways. Meta has long used machine learning -- an earlier branch of AI -- to surface relevant content for users and direct its targeted advertising. The development of generative AI only increased Meta's advantage, as the company curated AI-powered tools to help advertisers succeed.
The results tell the tale. In the second quarter, Meta generated revenue of $47.5 billion, which climbed 22% year over year, resulting in diluted earnings per share (EPS) of $7.14, which jumped 38%.
Commentary from CEO Mark Zuckerberg shed light on the results. He noted that AI is "unlocking greater efficiency and gains across our ads system ... [driving] roughly 5% more ad conversions on Instagram and 3% on Facebook." There's more. The company's content strategy is bearing fruit as users spent 5% more time on Facebook and 6% more on Instagram. More time translates to more advertising, which ultimately increases revenue.
The company's ever-expanding user base and increasing ad conversions position Meta for continued success.
NASDAQ: META
Key Data Points
The path to $3 trillion
Meta has a market cap of roughly $1.8 trillion (as of this writing), so it will take a stock price increase of roughly 66% to propel its value to $3 trillion. Wall Street's estimates that Meta will generate revenue of $196 billion in 2025, giving the stock a forward price-to-sales (P/S) ratio of 9. Assuming its P/S remains constant, Meta will need to generate revenue of roughly $327 billion annually to support a $3 trillion market cap.
Furthermore, Wall Street is currently forecasting Meta's revenue growth at nearly 15% annually over the next five years. If the company can achieve this benchmark, it could surpass a $3 trillion market cap as soon as 2029. Those projections might well be conservative, as Meta has grown its trailing-12-month revenue by more than 897% over the past decade.
Finally, at less than 27 times trailing-12-month earnings, Meta's valuation is cheaper than the multiple of 31 for the S&P 500 -- yet has increased by 656% over the past 10 years, well ahead of the S&P 500, which gained just 232%.
