In the years ahead, we’re likely to see the first $10trn company. With numerous technology stocks including Nvidia (NASDAQ: NVDA), Apple, Alphabet (NASDAQ: GOOG), Amazon, and SpaceX (NASDAQ: SPCX) already boasting multi-trillion-dollar market-caps, hitting this milestone seems inevitable.
Will it be Nvidia that gets there first? Or could Alphabet or SpaceX do it? Let’s discuss.
The path to $10trn
To try and answer this question, I’m going to look at three things:
- Market-cap today.
- Current valuation.
- Growth drivers.
By looking at these three different factors, we might be able to get some clues as to which company’s likely to hit $10trn first.
Market-caps
In terms of market-cap today, Nvidia has the largest at $4.7trn (as I write on 30 June). Alphabet isn’t far behind though – it’s at $4.3bn. Zooming in on SpaceX, it’s at $2.2trn. So it’s a fair bit smaller than the other two.
What this means is that it’s going to require the least work, in terms of market-cap appreciation, for Nvidia to get to $10trn. It only needs a little more than a doubling in size to get there. By contrast, SpaceX would need to grow its market-cap almost five-fold from here. That’s a much tougher ask.
Valuations
Turning to valuations, Nvidia currently trades on a forward-looking price-to-earnings (P/E) ratio of 15 using the next financial year’s earnings forecast. Meanwhile, Alphabet’s on 24.
SpaceX doesn’t have a P/E ratio because it’s not expected to be profitable next year. It does have a price-to-sales ratio though – that’s about 30 using next year’s revenue forecast which is very high.
So Nvidia’s the cheapest stock today by a wide margin. This could help it get to $10trn first. Because at current levels, there’s scope for an upward valuation re-rating.
This is less likely with the other two names because they look fairly valued and overvalued respectively (in my view).
Growth drivers
As for growth drivers, all three companies have them. For Nvidia, AI chips should continue to drive growth. But so should new technologies in areas such as robotics and self-drive cars.
For Alphabet, cloud computing and AI (including AI chips) are likely to be key sources of growth. YouTube could be another major driver though.
With SpaceX, I see its two main growth drivers as satellite broadband and AI compute. The AI side of the business is worth highlighting here – if the company can continue landing deals with hyperscalers and AI labs, it could see strong revenue growth in the years ahead.
My call
Putting this all together, I’m going to rule out SpaceX as the first $10trn company. It definitely has some exciting growth drivers but I just can’t see the company’s market-cap increasing five-fold any time soon.
That leaves us with Nvidia and Alphabet. And to be honest, I think both have a decent chance of hitting the milestone first.
My gut feeling however, is that it’ll be Nvidia. With its higher market-cap and lower valuation, I reckon it’s likely to be first to $10trn.
Of course, if AI spending slows dramatically, my thesis could come unstuck. However, with hyperscalers expected to spend a significant amount of money on the AI buildout again next year, I think the company’s prospects look pretty good and that it’s worth considering as an investment.
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Edward Sheldon owns shares in Nvidia, Alphabet, Apple, and Amazon.
