Here’s What It’s Like to Live in New Jersey as a Family of 4 on $150,000
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The prospect of having some stocks in your portfolio reach market capitalizations of $1 trillion can be exciting — but some perspective is needed. For example, Apple and Microsoft recently sported market caps of $2.3 trillion and $2.1 trillion, respectively. If they became worth $1 trillion each, their shares would have to fall about 57% and 52%, respectively.
Thus, to find promising growers that could grow to $1 trillion in a decade or less, let’s focus on somewhat smaller companies. Here are three contenders for your portfolio.
Image source: Getty Images.
1. Nvidia
Nvidia (NASDAQ: NVDA) is a major American chipmaker that’s a pioneer in computing and artificial intelligence. It’s a powerful growth stock, too, with its shares surging nearly 6,400% over the past decade — more than 51% on average, per year. Nvidia’s shares don’t have far to go to get to a $1 trillion market cap, with the company recently valued around $500 billion.
Doubling in a decade doesn’t seem like a tall order for the company, as it would only have to average annual growth of about 7%. Consider that in its recent second quarter, it posted total sales of $6.51 billion, up 68% from a year earlier; gaming revenue of $3.06 billion, up 85%; and data center revenue of $2.37 billion, up 35% — all of which were records. Nvidia dominates the gaming chip arena, and has its tentacles in plenty of other arenas, too. It’s spending more than $1 billion annually on research and development to improve its current offerings and come up with new ones, such as its GeForce NOW service that’s well suited to serve the growing cloud gaming industry.
With its price-to-sales and price-to-earnings (P/E) ratios both well above their five-year averages, many see the stock price as having gotten ahead of itself. Others, though, find it easy to see the company valued at $1 trillion or more in the coming years, and believe it’s worth buying (or considering buying) now.
2. Salesforce.com
Salesforce.com (NYSE: CRM), the leader in customer relationship management (CRM) software, recently sported a market value near $267 billion, meaning that it would have to roughly quadruple in value over the coming decade. There are no guarantees, of course, but that does seem possible. Its shares have popped more than 800% over the past decade, averaging annual growth of nearly 25%.
In its recent second quarter, Salesforce.com posted impressive revenue growth of 23% year over year (in constant currency), with CEO and Chair Marc Benioff noting:
Salesforce has never seen better execution or greater momentum. Our Customer 360 platform is now fueled by a herd of unicorns perfectly designed for this all-digital world. Sales, Service, Marketing & Commerce, Platform, Tableau, MuleSoft and now Slack are all billion dollar-plus products delivering customer success like no other company.
Note the mention of popular workplace collaboration platform Slack — which Salesforce recently purchased for $27.7 billion. Slack is expected to help Salesforce better serve its customers and to bring in new customers, as well.
Salesforce.com’s shares also don’t appear cheap by normal standards — with a recent P/E ratio in the triple digits — but again, many investors expect continued strong growth from the company, enough to make today’s price attractive in the rearview mirror a decade hence.
Image source: Getty Images.
3. Netflix
And then there’s Netflix (NASDAQ: NFLX), which needs little introduction. You may be very familiar with the video entertainment streaming giant, but you might not realize its market value was recently around $250 billion. Can it get to $1 trillion within a decade? Well, yes, if the past is any indication: Its shares have surged close to 3,200% over the past 10 years, averaging more than 41% annually.
The past is not a fool-proof indicator of future performance, though. It’s always best, when evaluating a company as a possible investment, to look at the future and assess how much more you can reasonably expect the company to grow.
Netflix does have a lot going for it, of course: Its huge base of subscribers delivers substantial predictable revenue with which the company can develop or acquire more content — to attract new subscribers and to retain existing ones. It’s also looking at remote gaming as a new and potentially powerful revenue stream. That big base of subscribers (some 209 million at recent count) is a huge competitive advantage, as Netflix can pitch many new offerings at it. In the meantime, Netflix’s revenue grew 19% year over year in its last quarter, while its operating margin grew faster, at 25%.
Detractors point to increased competition for Netflix from many directions, such as Amazon‘s Prime Video, Disney‘s Disney+, Apple TV+, Hulu, and even Alphabet‘s YouTube. They might also assert that Netflix’s shares also don’t appear cheap, with a recent P/E ratio of 61. But that’s well below its five-year average of 155, as the stock’s supporters would point out. It’s also been co-existing rather successfully with plenty of rivals.
Growth stocks are very compelling, because having just one or two amazing performers in your portfolio can give it a big boost. Don’t buy into them at any price, though — valuation matters. So be sure you see the stock appreciating enough over the coming decade to give you a good return. And if you’re not sure about a stock, you might simply add it to your watch list or buy into it incrementally over time.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Selena Maranjian owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Netflix, Salesforce.com, and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Netflix, Nvidia, Salesforce.com, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
