At the beginning of October, Bankrate.com published a list of the five most valuable tech giants. They were all trillion-dollar companies.
Apple (NASDAQ:AAPL) led the list with a market capitalization of $2.7 trillion. As the month progressed, Apple’s market cap dropped by about $70 billion, while the Nasdaq-100 Technology Sector Index lost more than 4.5%.
There’s no question that the markets are struggling here in the final quarter of the year. The S&P 500 traded very close to 4,600 in late July. Its gain for the year is down to single digits (7.7% as of Oct. 27).
Things have deteriorated to the point where Nvidia (NASDAQ:NVDA) is teetering on the line between a trillion-dollar company and a large market cap.
It would be easy for me to pick Nvidia as the company most likely to hit the trillion-dollar mark. Too easy. So, for the purposes of this article, Nvidia is excluded from the selection process.
Here are three future trillion-dollar companies that appear reasonably priced to undervalued.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is the only one of the three that has the possibility of hitting a trillion-dollar market cap in 2024. Its volatility works for and against its share price movement.
With a current market cap of $650 billion, it traded for nearly double in November 2021. In fact, it officially joined the trillion-dollar club on October 25th, 2021, only to fall out in the following spring.
The biggest issue holding back Tesla from reentering the trillion-dollar companies club are the worries that the adoption of electric vehicles (EVs) will take much longer than initially anticipated, making Tesla’s EV price reductions a permanent thing, and a drag on revenues and profits.
“But the EV market is wobbling as high interest rates dampen customer demand for electric and other vehicles. That’s ‘preventing a lot of people from even getting into the market,’ Jessica Caldwell, head of insights at Edmunds, told Fortune.”
As Fortune reported, Tesla’s latest quarterly earnings per share were 10% lower than analyst expectations, and the lowest in the past eight quarterly reports. The poor results shaved nearly $140 billion off its market cap, making the move to a trillion that much more difficult.
Something positive has to happen to change the trajectory of its stock. However, of all the S&P 500 stocks with a market cap greater than $100 billion, it’s the only one that has a shot in 2024.
Berkshire Hathaway (BRK-A, BRK-B)
As much as I love Warren Buffett and Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), it is not a high growth company. With a current market cap of $724 billion, its share price would have to increase by 38% to push its market cap over $1 trillion.
Can this happen in 2024? Sure, it’s possible, but not probable. According to Berkshire’s 2022 shareholder letter, its share price has increased by 30% annually on 20 occasions since 1965. The most recent occurrence in 2013, up 32.7%. Before that, it was 1998 (52.2%).
Now, if its share price increases by 17.5% annually over the next two years, it can get to $1 trillion. Since 2013, its share price has met this level 50% of the time. That’s very doable.
The big thing that will prevent it from getting there in the next two years would be the death of Warren Buffett. That would most certainly send shares lower. How long they would remain low would depend on the transition plan and how well it is executed.
Knowing Buffett, that won’t be a problem. Berkshire’s already revealed that Greg Abel, the person in charge of its non-insurance operating businesses, will be the next CEO after Buffett dies or steps down.
In March, Abel added to his Berkshire stock, bringing his total stake to $105 million, more than enough incentive to keep growing the business after the Buffett/Munger era officially ends.
Visa (V)
I picked Visa (NYSE:V) because I thought its consistency would help its share price continue higher despite a possible recession in 2024. Sure, its overall business is driven by transactions processed for bank credit cards, etc., which would likely drop in such an event, but it remains an excellent business that trades at a reasonable value.
Visa’s current market cap is $464 billion, meaning it would have to double and then some for it to enter the trillion-dollar club. That’s unlikely to happen in the next 2-3 years.
However, if the company continues to invest in technology to keep pace with the fintech industry, I don’t see why it can’t happen within the next five years.
Visa recently announced a $100 million generative AI venture fund that will invest in up-and-coming businesses that are the “next generation of companies focused on developing generative AI technologies and applications that will impact the future of commerce and payments.”
Visa has utilized artificial intelligence (AI) since 1993, so it knows a thing or two about machine learning and the part it will play in the financial services industry.
You’ll notice that Meta Platforms (NASDAQ:META), the company in the S&P 500 closest to $1 trillion, is not on my trillion-dollar companies list. I feel there are too many uncertainties with social media at the moment to warrant inclusion.
Maybe next year.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
