At the time of writing, Apple, Microsoft, Alphabet, and Amazon are the only four U.S. companies with a market capitalization of $1 trillion or greater. Tesla is not far behind, with a market cap of $907 million.
These are elite businesses that have earned shareholders tremendous gains. It goes without saying that these companies all had much smaller market caps not too long ago. Amazon’s market cap was $105 billion exactly 10 years ago.
Generally, a good place to look for the next home-run stocks are growing companies with a market cap between $100 billion to $500 billion. But in this case, let’s first look at Warren Buffett’s Berkshire Hathaway (BRK.A 1.66%) (BRK.B 1.71%), which has a higher market cap but could be a timely buy right now.
1. Berkshire Hathaway
Berkshire Hathaway is one of the safest stocks you can hold for the long term. After rising 50% over the last five years, it carries a market cap of $653 billion. That puts it within shooting distance of the $1 trillion milestone. There are a few reasons Berkshire will keep growing in value.
Berkshire has a sterling balance sheet with $122 billion of cash and fixed securities. The company has a large stock portfolio worth $327 billion at the end of the second quarter. Buffett’s investment vehicle holds large stakes in Apple, Bank of America, and Coca-Cola, among other stocks. Buffett has most recently been adding to large stakes in Chevron, Occidental Petroleum, and leading PC brand HP (formerly Hewlett-Packard).
Another piece of Berkshire’s intrinsic value is its dozens of privately held businesses. The company’s subsidiaries span everything from candy to railroads. It also owns several insurance companies that provide $147 billion in float, or money that Berkshire collects from insurance premiums that it can reinvest in stocks, bonds, or acquisitions. Many of these Berkshire-held businesses tend to be immune from the changes in technology, which adds a degree of predictability to their long-term performance — something Buffett no doubt considered.
One of Buffett’s best stock ideas lately has been Berkshire Hathaway itself. Through the first half of 2022, he bought $4 billion worth of the company’s shares — a sign that Buffett sees the stock as undervalued. The stock’s price has tripled over the last decade and could repeat that return, which would push Berkshire’s market cap over $1 trillion by 2032.
2. Advanced Micro Devices
Owning companies that serve megatrends in technology, such as spending on data centers, cloud computing, and other advanced computing needs could pay off big. Advanced Micro Devices has emerged as a key supplier of high-performance chips in these markets.
AMD currently sports a low forward price-to-earnings ratio of 23, based on 2022 earnings estimates, and has a market cap of $159 billion. To reach $1 trillion in 10 years, the share price needs to climb at a compound annual rate of 20%. That is achievable for this fast-growing chipmaker.
For a long time, AMD was the underdog in the semiconductor industry. It’s always played the role of a low-cost alternative to leaders like Intel and Nvidia, but not anymore.
While AMD is still way behind Intel in central processing units (CPUs) and Nvidia in graphics processing units (GPUs), it is winning over customers with its renewed focus on designing high-performance chips. Data center operators are now looking at AMD’s Epyc server chips as a viable alternative to Intel. In the last quarter, AMD again gained market share over its CPU rival. Revenue grew 70% year over year in the second quarter, driven by strong growth in data center chips and consumer chips for notebooks and gaming.
The data center accelerator market, which includes spending on CPUs and GPUs, is expected to grow at a compound annual rate of 34% through 2027, reaching $75 billion. AMD just completed the acquisition of Xilinx, a leading supplier of field-programmable gate array (FPGA) chips, which fills out its product lineup to tackle this enormous opportunity. The strong tailwind in the data center market, along with AMD’s modest valuation, could deliver market-beating returns to investors over the long term.
There is a reason why AMD CEO Lisa Su is considered one of the top business leaders right now. Su has done a marvelous job guiding this underdog to industry leadership, and its best days are still ahead.
The name Salesforce doesn’t sound like a growth tech stock that is worthy of the elite club of $1 trillion companies, but every investor should know about this amazing business.
Former Oracle executive Marc Benioff co-founded Salesforce in 1999 and currently serves as the company’s chairman and co-CEO. Salesforce pioneered the software-as-a-service business model. Companies save money by subscribing to Salesforce’s cloud-based software, which lowers in-house expenses by maintaining, installing, and keeping systems updated.
Salesforce has grown tremendously and has been ranked the No. 1 customer relationship management (CRM) software provider for nine years. Its flagship product is the artificial intelligence (AI)-powered Customer 360 platform, which offers a suite of software that helps companies manage sales, marketing, and e-commerce, and it continues to expand into new categories.
It has reinvested its growing profitability into strategic acquisitions that expand its offering and competitive lead in the market. Last year, it acquired Slack Technologies, which offers a communication platform for employees, for $27 billion.
What’s most remarkable about Salesforce is its consistency, which speaks volumes about the size of its long-term growth opportunity. After two decades of high revenue growth, Salesforce is still growing quarterly revenue over 20% year over year.
It generated $27 billion in revenue over the last four quarters, but the total addressable market for the company’s services is expected to reach $284 billion by 2026, according to Gartner Research. It can grow for a long time. However, if Salesforce continues its record of strategic acquisitions, its addressable market could widen even more as it expands its product offering.
With a market cap of $189 billion, Salesforce is well on its way toward $1 trillion. It has the industry leadership and massive market opportunity to deliver market-beating returns to investors.
Now is the perfect time to buy shares. At a price-to-sales ratio of 6.8, the stock is near its cheapest valuation in the last 10 years.
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. Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Ballard has positions in Amazon, Nvidia, and Salesforce, Inc. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), HP, Intel, Microsoft, Nvidia, Salesforce, Inc., and Tesla. The Motley Fool recommends Gartner and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2023 $57.50 calls on Intel, long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), short January 2023 $57.50 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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