Discover the Relentless Artificial Intelligence (AI) Equity Likely to Align with Apple, Nvidia, and Microsoft in the $3 Trillion Bracket by 2028
Discover the Relentless Artificial Intelligence (AI) Equity Likely to Align with Apple, Nvidia, and Microsoft in the $3 Trillion Bracket by 2028
As we step into 2022, Apple Inc. (NASDAQ: AAPL) became the pioneer in reaching a staggering $3 trillion market cap. This monumental valuation was unthinkable a decade prior, when the world's largest company, again Apple, was only worth around $600 billion. Back then, many argued it was overvalued. Today, however, not one but three companies have surpassed the $3 trillion milestone - Apple, Nvidia Corporation (NASDAQ: NVDA), and Microsoft Corporation (NASDAQ: MSFT). More companies are expected to join this exclusive club in the coming years.
Interestingly, all three companies in the $3 trillion club have a connection to the exploding growth of artificial intelligence. The next additions to this club will likely benefit from the increasing investments and reliance on AI in both business and daily life. Among these, one company stands to gain significantly from its substantial investment in AI, potentially doubling its value over the next few years, securing a $3 trillion market cap for itself.
In my opinion, we will see Meta Platforms, Inc. (META -1.65%) join the $3 trillion club by 2028. Here's how AI is set to propel Meta there.
How AI can significantly boost Meta's performance
Meta's business has long been powered by artificial intelligence, commonly known as "the algorithm." The algorithm decides what content to show a user and when to do so, whether it's a friend's photo, a creator's video, or an ad from a small business. Meta uses multiple machine learning systems to suggest the best content for each type of content on its various platforms.
However, the success of large language models has led Meta to shift its strategy. It is now developing a unified content recommendation system inspired by large-scale language models for its various platforms. This new system has proven to be more efficient and effective than its previous algorithms.
Moreover, with generative AI, Meta can assist advertisers in creating numerous variations of their ads. It has the capacity to test each ad across its platform and optimize targeting and creative to achieve the best outcomes. Mark Zuckerberg envisions a day when an advertiser just needs to tell Meta its objective and budget, and Meta will handle the rest. This could significantly boost sales as it would open up advertising opportunities for smaller creative teams.
Meta also introduced the ability for businesses to create their own AI chatbots for WhatsApp and Messenger last year. This development represents an opportunity to finally monetize Meta's messaging apps by allowing businesses to engage with potential customers at scale.
Lastly, generative AI has the potential to increase the volume of user-generated content. Meta introduced a feature in Meta AI, its AI chatbot within its apps, which enables users to create AI-generated images and share them on their feed or stories, or even use them as their profile picture. Meta encourages users to create their own images based on the ones they like, potentially leading to more AI-generated content.
Investors can clearly visualize how AI can boost user engagement across Meta's apps, improve its monetization, and eventually lead to more efficient engineers, resulting in increased revenues and improved profit margins. This is far more than other major companies can claim as they ride the AI wave.
The road to $3 trillion
Meta currently has a market cap of nearly $1.5 trillion. To reach $3 trillion by 2028, the stock will need to deliver compound annual returns of approximately 20%. This appears achievable for a tech stock, especially if AI fuels faster earnings growth.
Analysts project a 15% increase in revenue for Meta next year. If Meta can maintain this growth rate for the following three years, it will be on a solid path toward a $3 trillion valuation.
In the short term, Meta's significant capital expenditures for AI development will impact its operating margin as more and more of its current spending translates into depreciation expenses later. Over time, however, the impact of this spending will diminish as Meta continues to grow. Furthermore, since depreciation is a non-cash expense, it will maintain strong free cash flow, allowing management to buy back shares, which should lead to strong earnings-per-share growth and justify a high earnings multiple.
Meta's shares currently trade at a modest 22.5 times analysts' 2025 earnings estimate. By comparison, Apple, Microsoft, and Nvidia trade at 31.6, 32.5, and 32.6 times forward earnings estimates, respectively. If Meta's earnings multiple expands slightly towards the mid-20s as it demonstrates strong financial results and continues to buy back shares, it should generate returns sufficient to surpass the $3 trillion mark.
Of course, reaching the $3 trillion milestone is not guaranteed. However, given its advancements in AI and the current market's attractive price on the stock, Meta seems well-positioned to grow.
In the realm of investing, Meta Platforms, Inc.'s significant advancements in artificial intelligence and its potential to boost user engagement, improve monetization, and increase revenues make it a strong contender for joining the $3 trillion club by 2028. To achieve this valuation, Meta needs to deliver compound annual returns of approximately 20%, which, given its growth trajectory and the AI-fueled earnings growth, seems achievable.
To fully exploit the potential of AI, Meta is investing heavily in capital expenditures, which may impact its operating margin in the short term. However, these investments will contribute to non-cash depreciation expenses, maintaining strong free cash flow and enabling share buybacks, leading to strong earnings-per-share growth and justifying a higher earnings multiple. With its current trading price at a modest 22.5 times analysts' 2025 earnings estimate, Meta appears well-positioned to grow toward the $3 trillion milestone, provided its earnings multiple expands slightly as it demonstrates strong financial results.