AI Stocks Surge: Nvidia, Apple, and Microsoft Lead the Trillion-Dollar Club

Can This Unstoppable AI Stock Join Nvidia, Apple, and Microsoft in the $3 Trillion Club? | The Motley Fool

A $3 trillion market capitalization is big. Very big. Today, only three companies have larger market caps: Nvidia, Microsoft, and Apple. I think there's another artificial intelligence (AI) company that could be joining the club in the not-so-distant future -- Amazon (AMZN -0.54%). Currently, Amazon sits just above a $2 trillion valuation, nothing to shake a stick at, but only two-thirds that of the top companies. To join the club, the company has to see its stock price rise by 50%. I'm confident this will happen at some point; the real question is when. Investors can consider what might be a reasonable time frame by looking at the numbers, but before getting too far in the weeds, let's take a look at the big picture. There are a few key strengths that I think will propel the company in the next few years, as well as some hurdles that could trip it up. In 2023, Amazon delivered 4 billion packages in the U.S. alone within one day of purchase. Customers take for granted how radically different this is from the paradigm Amazon disrupted -- I know I do. Few companies have had a bigger impact on the daily habits of consumers than Amazon. Amazon controls more of the U.S. online retail space than the next 10 competitors combined, and its sales don't seem to be slowing. The company has been growing its share of the online market consistently. It's expected to surpass 40% this year, up from 38% in 2020. Amazon is capturing more and more of a growing market it already dominates. Think about your own behavior; do you think you will be more or less likely to order an item online five years from now? E-commerce may be Amazon's bread and butter, but the company's Amazon Web Services (AWS) is a money-making machine. It's the leading cloud provider available, controlling 31% of the market. The cloud was already profitable, but with the advent of artificial intelligence (AI), AWS is bringing in record revenue. Amazon reported a 17% year-over-year jump in revenue for Q1 as well as a near doubling of its operating income. In other words, the company is becoming more efficient. Although it's facing increasing competition from other cloud providers like Microsoft's Azure, AWS looks to be positioning itself well to take full advantage of the AI boom. Amazon is also seeing strong, double-digit growth in its streaming and advertising business. Having built up a substantial audience for its streaming platform, it introduced a tiered system where users need to pay extra to avoid commercials. For those who opt for the ad-supported tier, Amazon sells incredibly valuable ad space to companies that understand Amazon knows a lot about its users. These changes led to a year-over-year jump in revenue of 26% for Q4 2023 and a 24% year-over-year jump for Q1 2024. Although I think Amazon is on a good path, it's not without major obstacles that could slow it down. One of the most potentially destabilizing is the antitrust lawsuit it is facing from U.S. regulators. The Federal Trade Commission and a slew of states are accusing the company of employing anticompetitive strategies that allow the company to maintain its market dominance. It is impossible to tell at this point what the outcome will be, and the ever-shifting winds of politics mean the case could be dropped, but the threat remains that Amazon may be forced to change how it operates and pay substantial penalties. When might Amazon join the club? Let's start by assuming its relative value in the market stays consistent. In other words, if its stock rises by 50%, it needs to make 50% more money. Consensus estimates put Amazon's 2025 revenue at $710 billion. That's well short of the 50% increase, but if that rate of growth holds beyond 2025 -- about 15% compounded annually -- it will take just shy of three years. Now a 15% growth rate is phenomenal and at the upper end of what you should make a habit of expecting, but I think Amazon actually can do it faster. Here's why. Revenue is only one part of the equation. The market often cares more about earnings per share (EPS) when valuing a company. Let's hold most of that formula constant and just look at net income. Amazon has been consistently growing net income in relation to revenue for some time. That is, its profit margins are growing. If Amazon can grow margins from last quarter's 7.3% to just under 9%, the $710 billion in revenue expected in 2025 would be enough to grow its net income -- and EPS -- by 50% from today's level. The company could join the $3 trillion club in as little as a year-and-a-half. Can it pull that off? I think that's possible given the high growth from its AI-fueled AWS and Amazon's ad businesses. As they become a larger mix of its total revenue, Amazon's overall margins will continue to grow. Although these assumptions might not hold true, they show a path to a $3 trillion valuation for Amazon in the not-too-distant future.

1 Phenomenal Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta in the $1 Trillion Club | The Motley Fool

A long track record of cloud and information technology (IT) systems expertise could drive this artificial intelligence (AI) specialist even higher. Recent developments in the field of artificial intelligence (AI) are having a dramatic impact on the technology landscape, which is evident in the market value of some of the world's most technologically advanced businesses. What many of these companies have in common is that they're trailblazers in AI. Apple is currently the leader (as of this writing), with Microsoft currently at No. 2, with market caps of $3.4 trillion and $3.3 trillion, respectively. Nvidia's ascent has been breathtaking, adding nearly $2 trillion in value over the past year and climbing to $2.9 trillion to take the No. 3 spot. Alphabet, Amazon, and Meta Platforms -- all at the forefront of the AI revolution -- boast market caps of $2.2 trillion, $1.9 trillion, and $1.2 trillion, respectively. With a market cap of just $387 billion, it might seem like a longshot to suggest that Oracle (ORCL -0.69%) might be in the running for membership in the $1 trillion club. However, an examination of the company's recent results and commentary from management suggests the adoption of generative AI could push the company to new heights over the next few years. Oracle is in an enviable place in the AI revolution. It offers cloud, database, and enterprise-software solutions that are relied upon by 98% of the global Fortune 500 companies. Oracle's information technology (IT) expertise makes it one of the go-to sources for enterprises looking to adopt generative AI solutions. This has helped fuel solid overall growth. During Oracle's fiscal 2024 fourth quarter (ended May 31), revenue of $14.3 billion grew 3% year over year, while operating income jumped 15% -- but that doesn't tell the whole story. During the Q4 earnings call, Chairman and Chief Technology Officer Larry Ellison noted that the company had inked more than 30 AI-centric contracts worth more than $12 billion in the most recent quarter alone. This included some of the largest contracts in Oracle's history. Ellison said he expects robust demand for generative AI to "turbocharge" the company's cloud database growth. This, in turn, pushed the company's remaining performance obligation (RPO) -- or contracts not yet recognized as revenue -- to $98 billion, up 44% year over year. When RPO is growing faster than revenue, this suggests sales growth is accelerating. This helps to illustrate that Oracle is capitalizing on the growing demand for AI among its sizable customer base. Oracle's long track record of cloud and AI experience has many new and existing enterprise clients jumping on the generative AI bandwagon, looking to benefit from the increased productivity resulting from AI adoption. That said, fortune favors the patient, as this process will take some time to come to fruition. According to Wall Street, Oracle is expected to generate revenue of $57.9 billion in its fiscal 2025 (which began June 1), giving it a forward price-to-sales (P/S) ratio of roughly 7. Assuming its P/S remains constant, Oracle would need to grow its revenue to approximately $148 billion annually to support a $1 trillion market cap. Revenue grew by 11% year over year in the most recent quarter and is expected to accelerate to 15% for the fiscal year. If the company achieves 11% sales growth, Oracle could reach a $1 trillion market cap by 2034. However, if the company can maintain a growth rate of 15%, it would knock a couple of years off that timeline, reaching a $1 trillion market cap by 2032. That said, estimates regarding the impact of generative AI adoption continue to ratchet higher. Conservative estimates suggest the market could grow to between $2.6 trillion and $4.4 trillion annually, according to global management consulting firm McKinsey & Company. If Oracle continues to successfully tap into this AI opportunity and proceeds along its current growth trajectory, the company could achieve a $1 trillion market cap sooner than many expect.

1 Artificial Intelligence (AI) Stock to Buy Before It Soars 335% to $3 Trillion, According to a Wall Street Analyst | The Motley Fool

Gene Munster believes Tesla is on pace to be a $3 trillion company. Gene Munster, co-founder and managing partner at Deepwater Asset Management, recently told CNBC that Tesla (TSLA 1.97%) is on pace to be a $3 trillion company. Munster highlighted opportunities related to artificial intelligence (AI), like full self-driving software and robotaxi services as key growth drivers. His prediction lacks a specific timeline, but a $3 trillion valuation implies a 335% upside from Tesla's current market capitalization of $687 billion. Here's what investors should know. Tesla reported disappointing financial results in the second quarter. Revenue increased a meager 2% to $25.5 billion, narrowly topping expectations. But GAAP net income nosedived 45% to $1.5 billion, missing estimates for the fourth consecutive time. The company has now recorded a profit margin below 6% in back-to-back quarters, something that hasn't happened in more than three years. On the bright side, demand for electric vehicles (EVs) should improve as the macroeconomic climate becomes more favorable for consumers. The catalyst for that turnaround could come later this year. Pricing data from futures contracts implies three 25 basis-point rate cuts in 2024. Specifically, investors believe the Federal Reserve will lower its benchmark interest rate at meetings in September, November, and December. Additionally, while Tesla has lost share in battery electric vehicles (BEVs) this year, the company remains a formidable player. In the U.S., Tesla accounted for 48% of BEV sales through May, topping the next closest competitor by 40 percentage points. Globally, Tesla accounted for 16% of BEV sales through May, trailing the industry leader BYD by less than 1 percentage point. The bull case for Tesla says its core electric-vehicle business is a stepping stone to bigger opportunities in software and services, especially those related to artificial intelligence. Full self-driving (FSD) software is the cornerstone of that narrative. In theory, FSD will support direct monetization via subscription and licensing, and indirect monetization via autonomous ride-hailing (robotaxi) services. In 2023, CEO Elon Musk told CNBC's David Faber that robotaxis could push Tesla's gross margin toward 70%. That would be a dramatic increase in profitability, compared to its gross margin of 18% in the most recent quarter. Adam Jonas at Morgan Stanley believes Tesla could be a "formidable player (if not an outright winner) in the race to autonomy," due to its strong presence in the electric-vehicle market, which itself has given rise to a material data advantage. Tesla uses its vast network of FSD-enabled vehicles to source video data, and that data is used to train and improve the underlying machine-learning models. Tesla has data from over 1.3 billion miles driven in FSD, and Ark Invest estimates the company is accumulating data 110 times more quickly than Alphabet subsidiary Waymo, its primary competitor. Gene Munster believes FSD could generate $100 billion in annual operating income through subscription and licensing fees within a decade. Tesla doesn't currently license its FSD software, but Musk, on the recent earnings, call told analysts: "There are a few major OEMs that have expressed interest in licensing Tesla full self-driving, and I suspect there will be more over time. But we can't comment on the details of those discussions." The Dojo supercomputer is another potential revenue stream related to artificial intelligence. Dojo features custom chips purpose-built for video training that should accelerate FSD development. Taiwan Semiconductor recently confirmed those custom chips are in production, and Musk believes Dojo could be competitive with Nvidia-based systems in the future. With proof of concept, Tesla could monetize Dojo by selling AI cloud services to other businesses. More importantly, Dojo is tailormade for AI vision systems, so it should help the company more quickly train the machine-learning models that power its FSD software. Adam Jonas at Morgan Stanley discussed that idea in a note to clients: "In its quest to solve for autonomy, Tesla has developed an advanced supercomputing architecture that pushes new boundaries in custom silicon and may put Tesla at an asymmetric advantage in a $10 trillion total addressable market." Tesla plans to unveil its robotaxi at a company event scheduled for Oct. 10. On the earnings call, Musk fielded a question about when Tesla expects the first robotaxi ride. He said: "Possibly by the end of this year. I would be shocked if we cannot do it next year." Wall Street expects Tesla to grow revenue and earnings per share at annual rates of 16% and 25%, respectively, through 2026. Those estimates seem too pessimistic, perhaps due to macroeconomic uncertainty and skepticism about Tesla's ability to pivot toward software and services. I think Tesla could grow earnings by 30% annually over the next decade. I say that because electric-vehicle sales are projected to increase at 33% annually through 2030, and the robotaxi market is forecast to expand at 53% annually through 2032. If Tesla does grow earnings at 30% annually over the next decade, the stock could certainly appreciate by 16% annually over the same period, carrying its market capitalization to $3 trillion by mid-2034.