This Will Be Wall Street's First $5 Trillion Company — And It's Not Nvidia
This Will Be Wall Street's First $5 Trillion Company — And It's Not Nvidia
Change may be the only sure thing on Wall Street. The jigsaw puzzle that makes up the largest public companies is constantly changing due to factors such as innovation, competition, mergers and acquisitions, bankruptcies and legal decisions.
As 2004 comes to an end, Exxon Mobil It was the largest listed company at the time S&P 500 Indexand Citigroup and General Electric Also entered the top 10. today, Microsoft(NASDAQ:MSFT) It is the only company in the top 10 at the end of 2004 that still ranks among the largest public companies in the United States.
Image source: Getty Images.
Since mid-2023, we have witnessed apple(NASDAQ:AAPL)Microsoft and semiconductor giants NVIDIA(NASDAQ: NVDA) All over $3 trillion valuation platforms. While Nvidia appears to be the surest bet to reach the psychologically important $5 trillion level given the rise of artificial intelligence (AI), the dark horse candidate may have the clearest path to becoming Wall Street's first $5 trillion company.
On the one hand, it is undeniable that Nvidia has enjoyed textbook operational expansion. The company's Hopper (H100) graphics processing unit (GPU) and subsequent Blackwell chips have been the first choice for enterprises looking to run generative AI solutions and train large language models in their high-compute data centers.
Due to overwhelming demand for GPUs, Nvidia's Hopper chips sell for $30,000 to $40,000, four times the price of GPU chips. AMD Customers have been charged for their Instinct MI300X GPUs. Having extraordinary pricing power helped Nvidia's gross profit margin last year reach 78.4%.
While the long-term prospects for artificial intelligence remain encouraging, and the technology has practical applications in most industries around the world, Nvidia's chances of becoming Wall Street's first $5 trillion company may be hampered by history.
About thirty years ago, the Internet began to go mainstream and gave businesses a new way to connect with potential customers. While the Internet ultimately changed the growth trajectory of American businesses in positive ways, it took years for businesses to truly understand how to take advantage of these new sales and marketing channels.
Every game-changing technology or innovation in 30 years, including the Internet, has experienced an early bubble. Simply put, investors have consistently overestimated the speed with which new technologies/innovations can be adopted or gain widespread use. Since most companies lack a clear game plan to maximize the return on their investments in AI, this makes AI the next in a long line of bubbles.
Since no company is benefiting more directly from the AI revolution than Nvidia, the logical expectation is that its stock will be among the hardest hit. Historical precedent suggests Nvidia's valuation is unlikely to rise to $5 trillion first.
Image source: Amazon.
If history repeats itself and the AI bubble bursts, that would also be bad news for Microsoft, which has been investing heavily in an AI-driven future. Although Microsoft's operating cash flow is not as heavily dependent on artificial intelligence as Nvidia's, becoming the first company to be valued at $5 trillion is still somewhat difficult.
The same goes for Apple, another listed company on Wall Street with a market capitalization of $3 trillion. While Apple's services segment continues to grow at double-digit percentages, sales of physical devices, including iPhones, have been stagnant for two years. Apple stock is already trading at one of its highest valuations in a decade, leaving little room for its valuation to rise by another $1.4 trillion.
The segment of the “Big Seven” that seems most likely to achieve a $5 trillion market capitalization is the e-commerce giant Amazon(NASDAQ: AMZN).
When most consumers and investors hear the name Amazon, they think of its dominant online marketplace. Last February, eMarketer predicted that Amazon would account for just over 40% of U.S. online retail sales by 2024. While the online retail platform has been the face of Amazon for nearly three decades, e-commerce has played a minimal role in cash flow. Generation and operating income.
Much of Amazon's growth potential (especially cash flow growth) comes from its ancillary operating segments, of which Amazon Web Services (AWS) leads the way.
AWS is the world's leading cloud infrastructure services platform and is expected to account for 33% of total cloud spending in the third quarter of 2024, according to technology analysis firm Canalys. For context, Amazon's share of spending among cloud service providers is more than Microsoft's Azure and letterGoogle Cloud, merged –These are the second and third largest cloud services spenders worldwide.
While artificial intelligence has played a big role in AWS's growth, enterprise spending on cloud services was growing at a steady double-digit rate long before it became Wall Street's hottest thing since sliced bread. With enterprise cloud spending still in the relatively early stages of expansion, Amazon expects margins to improve significantly in this area, significantly increasing its cash flow.
In addition to AWS, Amazon's advertising services and subscription services (such as Prime) are also growing at double-digit rates each. Amazon moves into exclusive sports events (Thursday night football and NBA streaming packages) should boost ad demand and support its subscription pricing capabilities.
The key is that, unlike Microsoft and Nvidia, Amazon won't be dragged down by the bursting of the AI bubble because it has an abundance of other catalysts.
Finally, Amazon keeps prices low. Throughout the 2010s, investors were willing to pay 23 to 37 times year-end cash flow to buy shares of the company. But as of the close of trading on January 10, Amazon's stock price was only 13.5 times consensus 2026 cash flow. If Amazon reaches the year-end median multiple of ongoing trading cash flow from 2010 to 2019, it would become the first Wall Street company to be worth $5 trillion.
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Citigroup is an advertising partner of Motley Fool Money. Suzanne Frey is an Alphabet executive and a board member of The Motley Fool. John Mackey is the former CEO of Amazon subsidiary Whole Foods Market and a board member of The Motley Fool. Sean Williams works at Alphabet and Amazon. The Motley Fool owns and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends GE Aerospace and recommends the following options: long January 2026 Microsoft $395 calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.
Prediction: This will be Wall Street’s first $5 trillion company — and it’s not Nvidia Originally published by The Motley Fool
