1 Unstoppable Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta in the $1 Trillion Club

1 Unstoppable Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta in the  Trillion Club

“Times are a-changin’,” as Bob Dylan sang.

It used to be industrial and oil companies that topped the list of the world’s most valuable companies, but over the past 20 years, a paradigm shift has occurred at the top. For example, General Electric And ExxonMobil were the largest companies in the world in 2004, in terms of market capitalization, at $319 billion and $283 billion, respectively.

A lot can happen over the course of two decades, and now eight of the ten largest companies come from the technology sector. Microsoft And Apple are engaged in an epic battle for the title of “the most valuable company in the world”. Each of them is currently worth around $3.3 trillion – and the top spot has changed hands several times over the past week. Nvidia hot on their heels with a market capitalization of $3.2 trillion, well ahead Alphabet And Amazonwith market capitalizations of $2.2 trillion and $1.9 trillion, respectively. Metaplatforms brings up the rear in the $1 trillion club, with a market value of $1.2 trillion. The common denominator that has propelled many of these tech stocks higher is the advent of artificial intelligence (AI)and the technological revolution is only just beginning.

With a market capitalization of approximately $851 billion (at the time of writing), Broadcom (NASDAQ:AVGO) recently joined the top 10 and seems destined to join this elite corporate fraternity. The company occupies a unique position in AI infrastructure, and the prevailing secular tailwinds could propel it toward membership sooner rather than later.

1 Unstoppable Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta in the  Trillion Club

Image source: Getty Images.

Do you want some chips with that?

Broadcom provides a broad range of semiconductor, software and security solutions that cover every corner of the mobile, broadband, cable and data center spaces. In fact, the company notes that “99% of all Internet traffic passes through some type of Broadcom technology.” This helps illustrate the company’s critical place in the AI ​​revolution, as this unique set of technologies underpins advances in generative AI, which exists primarily in data centers and the cloud, but which is rapidly evolving towards the periphery.

The VMWare merger late last year was a priority for management as Broadcom worked to transition VMWare products to a subscription licensing model. Cross-selling of these products to Broadcom customers has begun and is expected to accelerate in the coming quarters.

The results show that business is booming. In the second quarter, revenue climbed 43% year-over-year to $12.5 billion, while its adjusted earnings per share (EPS) of $10.96 edged up 6%. Management expects its robust growth to continue, leading it to raise its full-year revenue forecast to $51 billion, which would represent growth of 42%.

The company’s strong results also led Broadcom to announce a 10 for 1 stock split which sparked a new wave of interest in the company.

The Road to $1 Trillion

The broad reach of Broadcom’s semiconductors and other products, many of which are essential components of cloud and hyperscale data centers, makes it a key player in the AI ​​revolution.

According to Wall Street estimates, Broadcom is expected to generate revenue of $51.24 billion in 2024, giving it a forward price-to-sales (P/S) ratio of around 16. If the P/ If the title remains constant, Broadcom will need revenue. of approximately $60 billion per year to support a market capitalization of $1 trillion.

Interestingly, a quick check of the charts shows that Wall Street is forecasting revenue growth of 43% in 2024 and 16% in 2025. If the company hits those targets, it could reaching a market cap of $1 trillion as early as 2026. Additionally, given the opportunity presented by accelerated adoption of AI, these estimates may end up being conservative.

There is evidence that Broadcom is on track to achieve these goals sooner rather than later. Management noted that software revenue soared 175% in the second quarter, while AI revenue jumped 280%. Management expects the company’s AI-related revenue to reach more than $11 billion this year, which would represent 22% of its expected revenue for the fiscal year.

AI adoption is only just beginning, so more could happen. Generative AI is expected to generate economic value of between $2.6 trillion and $4.4 trillion annually over the next decade, according to global management consulting firm McKinsey & Company. If we include embedded software revenues, these figures double.

Excitement over Broadcom’s strong results and the stock split drove the stock price higher, leading to a commensurate increase in its valuation. The stock sells for 38 times forward earnings, a premium to a multiple of 28 for the stock. S&P500.

However, Broadcom’s stock has gained 2,480% over the past decade, compared to just 182% for the S&P. So this is not an apples to apples comparison.

Additionally, given the breadth of the company’s reach in the AI ​​ecosystem and the vast opportunities available to it, I would argue that Broadcom’s premium multiple is justified.

Should you invest $1,000 in Broadcom right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena holds positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

1 Unstoppable Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta in the $1 Trillion Club was originally published by The Motley Fool

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