Change is probably the one certainty on Wall Street. As a result of aspects akin to innovation, competition, mergers and acquisitions, bankruptcies, and legal judgments, the puzzle pieces that make up the largest publicly traded corporations are always in flux.
When 2004 got here to a detailed, ExxonMobil was the most important publicly traded company within the S&P 500, with Citigroup and General Electric also in the highest 10. Today, Microsoft(NASDAQ: MSFT) is the one member of the end-of-2004 top 10 that is still amongst America’s largest publicly traded corporations.
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For the reason that midpoint of 2023, we have witnessed Apple(NASDAQ: AAPL), Microsoft, and semiconductor colossus Nvidia(NASDAQ: NVDA) all surpass the $3 trillion valuation plateau. Although Nvidia would seem to be the surest bet to succeed in the psychologically essential $5 trillion level given the rise of artificial intelligence (AI), a dark-horse candidate can have the clearest path to develop into Wall Street’s first $5 trillion company.
On one hand, there is not any denying that Nvidia has enjoyed a textbook operating expansion. The corporate’s Hopper (H100) graphics processing units (GPUs) and successor Blackwell chips have been the popular options for businesses wanting to run generative AI solutions and train large language models of their high-compute data centers.
With demand for GPUs overwhelming supply, Nvidia has been in a position to command $30,000 to $40,000 for its Hopper chip, which is as much as 4 times as much as Advanced Micro Devices has charged customers for its Instinct MI300X GPU. Having otherworldly pricing power helped to push Nvidia’s gross margin to as high as 78.4% last yr.
While the long-term outlook for AI stays encouraging and this technology has real-world applications in most industries across the globe, Nvidia’s probabilities of becoming Wall Street’s first $5 trillion company are likely going to be thwarted by history.
Roughly three a long time ago, the web began going mainstream and offered businesses a latest option to connect with potential customers. Though the web did, eventually, alter the expansion trajectory for corporate America is a positive way, it took years before businesses really understood easy methods to harness these latest sales and marketing channels.
Including the web, every game-changing technology or innovation for 30 years has navigated its way through an early stage bubble. In simpler terms, investors have consistently overestimated how quickly a latest technology/innovation could be adopted or gain widespread utility. With most corporations lacking clear game plans as to how they’ll maximize the return on their AI investments, it sets artificial intelligence as much as be the following in a protracted line of bubbles.
Since no company has benefited more directly from the AI revolution than Nvidia, the logical expectation is that its stock could be hit the toughest. Historic precedent makes it unlikely that Nvidia ascends to a $5 trillion valuation first.
Image source: Amazon.
If history were to rhyme and the AI bubble bursts, it might even be bad news for Microsoft, which has been investing heavily in a man-made intelligence-driven future. Although Microsoft’s operating money flow is not as overwhelmingly reliant on AI as Nvidia, being the primary to succeed in a $5 trillion valuation could be a stretch.
The identical may be said for Wall Street’s other $3 trillion public company, Apple. Though Apple’s Services segment continues to grow by a double-digit percentage, its physical device sales, including iPhone, have stagnated for 2 years. Apple stock is already trading at certainly one of its priciest valuations in a decade, which leaves little room for its valuation to rise by one other $1.4 trillion.
The “Magnificent Seven” component that appears to have the clearest path to a $5 trillion market cap is e-commerce juggernaut Amazon(NASDAQ: AMZN).
When most consumers and investors hear the Amazon name, they consider its dominant online marketplace. Last February, eMarketer estimated that Amazon would account for just over 40% of U.S. online retail sales in 2024. While this online retail platform has been the face of Amazon for nearly three a long time, e-commerce plays a minimal role by way of money flow generation and operating income.
The lion’s share of Amazon’s growth potential (specifically growth in money flow) originates from its ancillary operating segments, with Amazon Web Services (AWS) on the front of the pack.
Based on data from tech-analysis firm Canalys, AWS is the world’s leading cloud infrastructure service platform, with an estimated 33% share of total cloud spending in the course of the third quarter of 2024. For context, Amazon’s share of spending amongst cloud-service providers is greater than Microsoft’s Azure and Alphabet‘s Google Cloud, combined — and these are the No’s 2 and three in global cloud-service spending.
Regardless that AI has played a job in AWS’s growth, enterprise spending on cloud services was growing at a gentle double-digit pace long before AI became the most well liked thing since sliced bread on Wall Street. With enterprise cloud-service spending still in its relatively early stages of expansion, Amazon can expect substantially higher margins from this segment to meaningfully boost its money flow.
Beyond AWS, Amazon’s promoting services and subscription services (e.g., Prime) segments are also respectively growing by double digits. Amazon’s push into exclusive sporting events (Thursday Night Football and NBA streaming packages) should improve demand for promoting, in addition to support its subscription pricing power.
The important thing point is that, unlike Microsoft and Nvidia, Amazon would not be dragged down by the AI bubble bursting because of its abundance of other catalysts.
Lastly, Amazon stays historically inexpensive. Throughout the 2010s, investors willingly paid 23 to 37 times year-end money flow to own shares of the corporate. But as of the closing bell on Jan. 10, Amazon’s shares are valued at just 13.5 times consensus money flow for 2026. If Amazon were to succeed in the median year-end multiple to money flow it traded at consistently from 2010 through 2019, it might develop into Wall Street’s first $5 trillion company.
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Citigroup is an promoting partner of Motley Idiot Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Sean Williams has positions in Alphabet and Amazon. The Motley Idiot has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Idiot recommends GE Aerospace and recommends the next options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
