The Trillion-Dollar Titans: Which Stocks to Watch in the Current Market
Recently, the bull market celebrated its two-year anniversary. Since 2024 began, the enduring Dow Jones Industrial Average, broad-based S&P 500, and growth-driven Nasdaq Composite have achieved multiple record-closing highs.
While the rise of artificial intelligence (AI) and excitement over stock splits have contributed to this market surge, it is the trillion-dollar companies on Wall Street that have served as the backbone of this rally.
Without adjusting for inflation (the Dutch East India Company has been excluded), there have been 10 public companies that have achieved a trillion-dollar market cap, nine of which are tradable on U.S. exchanges:
The initial seven belong to the so-called “Magnificent Seven,” with Tesla standing out as the only exception that currently does not hold a trillion-dollar market cap. Meanwhile, Warren Buffett’s Berkshire Hathaway and Taiwan Semi, a major player in chip manufacturing, recently crossed the $1 trillion threshold for the first time.
Though these influential companies each have their own competitive advantages and innovative strategies, their future prospects can vary significantly.
Investors Should Think Twice Before Buying Trillion-Dollar Stocks
Just because a company has hit or surpassed the trillion-dollar mark, it doesn’t automatically mean it’s a safe bet for investors. Each of these companies has a history of operational strength; however, some may have concerning issues that potential buyers should consider.
Take Nvidia, for instance. The stock has soared by 861% since the beginning of 2023, closing at the end of October at a significantly higher level, thanks to its H100 AI-graphics processing units, which are the top choice for businesses managing large data centers.
However, it’s important to note that no groundbreaking technology has managed to evade an early bubble-bursting event over the past 30 years. Investors typically overestimate how quickly a new innovation will become widely adopted, which ultimately leads to disappointment. There is nothing indicating that AI will defy this pattern, which raises concerns for Nvidia’s future.
Investors might find Apple appealing due to its massive cash reserve, exceeding $700 billion in share buybacks since 2013, and a leading market share in the U.S. smartphone sector. Additionally, CEO Tim Cook is implementing a shift towards a business model focused on higher-margin subscription services.
However, an analysis of Apple’s revenue reveals a decline in sales from its core physical products like the iPhone, Mac, and iPad over the past two years. The consistent growth that justified Apple’s high valuation is now faltering, leading to a forward price-to-earnings (P/E) ratio of 31, which raises eyebrows.
Similarly, Tesla may underperform when compared to the broader market. While the electric vehicle (EV) company has transitioned to mass production and is nearing its fifth year of GAAP profits, it still carries a lofty valuation for an auto stock.
In the first nine months of 2024, 51% of Tesla’s pre-tax income stemmed from unstable sources, like regulatory tax credits and interest earnings. Moreover, CEO Elon Musk has not consistently delivered the innovations he has promised.
Despite the mixed outlook for these trillion-dollar companies, one stands out as a noteworthy investment opportunity.
Why Alphabet is a Smart Investment Right Now
The trillion-dollar company that shines as a strong investment opportunity is Alphabet, the parent company of Google, YouTube, Google Cloud, and Waymo, among other ventures.
If there’s a downside to Alphabet, it’s that its business can be cyclical. Over 76% of the company’s $84.7 billion in net sales from the most recent quarter was derived from advertising. Companies often cut their marketing budgets at the first sign of economic trouble.
Nevertheless, Alphabet benefits from the economic cycle’s irregular nature. Out of the 12 U.S. recessions post-World War II, nine have been resolved within 12 months, with none extending beyond 18 months. In contrast, most economic expansions have lasted several years, often nearing a decade. Operating models reliant on advertising can benefit significantly during prolonged growth periods.
Another solid reason to buy shares of Alphabet lies in its dominance over internet search. As of September 2024, Google held a commanding 90% of the global internet search market share, according to GlobalStats. Google has maintained at least a 90% share each month for over nine years, making it the top choice for businesses targeting consumers and giving Alphabet significant pricing power in advertising.
Moreover, Alphabet’s future success is closely tied to Google Cloud. The company’s cloud service ranks as the third-largest globally (with a 10% market share as of the latest quarter) and achieved recurring profitability in 2023. Businesses are still in the early stages of cloud adoption, offering great long-term growth potential for Google Cloud.
To further this point, Google Cloud’s integration of generative AI should enhance growth rates in this segment.
Alphabet also boasts a substantial cash reserve. By the end of the last quarter, it had $100.7 billion in cash, cash equivalents, and marketable securities. This financial cushion allows for potential dividends and aggressive stock buybacks, with outstanding shares declining by nearly 11.6% from their peak, boosting earnings per share (EPS).
Finally, Alphabet presents an attractive valuation. Current shares are available to savvy long-term investors at a price of 19 times the consensus EPS for 2025 and under 14 times the projected cash flow for the upcoming year. To illustrate…
Assessing Alphabet’s Value: Is Now the Time to Invest?
What You Should Know Before Investing in Alphabet
Currently, Alphabet’s stock is trading at an 18% discount to its average forward price-to-earnings (P/E) ratio based on the last five years. In addition, its cash flow metrics show a 23% discount during the same period.
Before committing $1,000 to Alphabet stock, take a moment to consider analyst insights. The Motley Fool Stock Advisor team has highlighted what they believe are the 10 best stocks to purchase now, and intriguingly, Alphabet is not included in this select list. The recommended stocks could potentially yield substantial returns in the future.
For context, think back to April 15, 2005, when Nvidia was among those top picks. A $1,000 investment then would have grown to an astonishing $861,121 today!*
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Notably, John Mackey, the former CEO of Whole Foods Market, and Randi Zuckerberg, a former Facebook executive, are among The Motley Fool’s board members. Additionally, Suzanne Frey, an executive at Alphabet, serves on the board. Sean Williams holds positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool endorses several other major companies, including Alphabet and Microsoft, and has a defined disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.