What business can reach $ 1,000 billion after Facebook? Here is our guess.

At the end of last month,

Facebook

landed what could be his most notable achievement to date: Its market value has reached $ 1,000 billion. Only five companies listed in the United States have reached the $ 1,000 billion mark, or 0.08% of the total number of shares currently traded on the New York Stock Exchange and the Nasdaq. That’s about the odds that a high school basketball player is part of the National Basketball Association. It is an elite club.

Now that Facebook (ticker: FB) has gained access – its market cap was down slightly at the end of the week, to $ 980 billion – we may be waiting some time for the next entrant. This is partly because the federal government wants to put the brakes on big business, but also because the current trillion dollar members have a natural incentive to keep the club small.

There is a big drop to the next candidate for membership, call it the trillion dollar cliff. Among the companies listed in the United States,

You’re here

(TSLA) is next, with a market value of $ 629 billion, followed by

Berkshire Hathaway

(BRK.A),

Alibaba Holding Group

(BABA),

Semiconductor manufacturing in Taiwan

(TSM), and

Visa

(V).

We have covered all of these stocks from close to Barron, and I’ve spent the last few weeks chatting with colleagues at the next company. I also polled sources and polled readers of our daily Review & Preview newsletter.

A few names are mentioned several times: Tesla,

Nvidia

(NVDA), Visa and

JPMorgan Chase

(JPM), each of which is worth at least $ 400 billion.

Shopify

(SHOP) got a less obvious mention. The company is at the bottom of the market value rankings at $ 182 billion. It has become something of the anti-

Amazon,

providing physical sellers and other businesses with simple e-commerce tools. While

Amazon.com

(AMZN) is looking to push back regulation and a potential disruption, Shopify can keep its head down and continue to recruit new businesses.

I will place my bets on Visa to reach $ 1,000 billion the next, even if it takes time. The company is closely linked to the economic recovery as it obtains a share of the transactions that pass through its global electronic payments network.

The business, which is part technology and part financial services, has a long tailwind as the use of cash declines around the world. Visa shares have generated an annualized return of 28% over the past decade. If this trend continues, Visa would reach $ 1,000 billion by 2024.

While the next trillion dollar move is clearly a guessing game, one thing is clear: Big numbers haven’t stopped future wins.

Apple

(AAPL) has generated an annualized return of 44% since becoming the first US listed company to reach a value of $ 1,000 billion in August 2018. The stock closed at a record high last week , which gives it a market value of $ 2.4 trillion.

Company / Teleprinter Market value (bill)
Apple / AAPL $ 2,390
Microsoft / MSFT 2,089
Amazon.com/AMZN 1,882
Alphabet / GOOGL 1,703
Facebook / FB 980
Tesla / TSLA 629
Berkshire Hathaway / BRK.A 626
Alibaba Group Holding / BABA 551
Semiconductor Manufacturing in Taiwan / TSM 544
Visa / V 505
Nvidia / NVDA 496
JPMorgan Chase / JPM 457
Johnson & Johnson / JNJ 445
Walmart / WMT 391
UnitedHealth / UNH Group 387

Note: US listed stocks only

Source: FactSet

I asked Denise Chisholm, business strategist at Fidelity, if the so-called law of large numbers would ever apply. “Size isn’t particularly predictive one way or the other,” she says. “S&P Information Technology, as a percentage of overall S&P, now exceeds 20%. Does it make sense as to whether this group or sector can outperform in the future? The answer is really no.

Right now, the trillion dollar members have momentum on their side. “A moving ball tends to stay in motion,” she says.

Tech’s secret sauce has steadily increased profit margins, with valuations essentially in line with their historical standards. S&P 500 information technology operating margins have doubled over the past 15 years, reaching 21% recently, according to Yardeni Research, while overall S&P 500 margins have remained static at around 10% (excluding collapse during the financial crisis).

The magic of technology – and those trillion-dollar club passes – now collide with the increased likelihood of regulation. “The mere fact of the trillion dollar club title is going to bring even more regulation,” said Jim Paulsen, chief investment officer of The Leuthold Group.

On Friday, the Biden administration signed an executive order calling for a “whole-of-government effort to promote competition in the US economy.” The order, which includes 72 initiatives, is both broad and narrow. He opposes consolidation while tackling consumer issues, such as early termination fees for broadband services, hard-to-repair consumer devices and airline baggage fees.

Right now, the Biden administration recognizes that technology regulation is not a slam dunk with the public. Despite the unease over data and privacy practices, less than half of American adults support increased technology regulation, according to a 2020 Pew Research poll.

A room at the F8 Developers Conference in San Jose, California.

David Paul Morris / Bloomberg

Regulating privacy is politically complicated, especially if it means curbing the advertising that allows free services like social media, internet search, and email. But there isn’t much controversy over limiting broadband charges or making smartphone battery repair easier. The White House seems to be attacking companies where it hurts: their mixed record on customer service.

For now, investors generally continue to neglect regulation. The five trillion dollar club members were either higher or stable on Friday following Biden’s decree.

It’s time to take regulation more seriously, says Ed Yardeni, president of Yardeni Research. “A trillion here, a trillion there is getting a lot of politicians’ attention.”

Write to Alex Eule at [email protected]


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