1 Magnificent Stock on Its Way to Join Apple, Microsoft, Amazon, Alphabet, and Nvidia in the $1 Trillion Club

The U.S. economy has a history of producing the world’s most valuable companies. The first-ever $1 billion enterprise was United States Steel, which achieved the milestone 122 years ago in 1901. Since then, several different companies have topped the valuation standings; General Motors became the first $50 billion company in 1955, and General Electric won the race to $100 billion in 1995. 

But the technology sector reigns supreme today. Apple was the first company ever to achieve a $1 trillion valuation in 2018, and it was recently worth as much as $3 trillion. But Apple has since been joined by a handful of other companies which have crossed the trillion-dollar milestone:

Data source: Google Finance. Valuations as of Oct. 25, 2023.

But there might be one more company set to join that impressive list in the near future. Social media giant Meta Platforms (META 2.91%) just announced its financial results for the third quarter, and it delivered record revenue, accelerated growth, and soaring profits. Those results were driven by a surge in engagement on Facebook and Instagram, thanks in part to artificial intelligence (AI). 

Meta is currently valued at $770 billion, but based on at least one key metric, it could join the $1 trillion club within the next few months.

The stars of Q3: video content and AI

Meta Platforms was actually in the $1 trillion club briefly during 2021. The stock market sell-off in 2022, combined with some operational missteps on CEO Mark Zuckerberg‘s part, sent the stock on a 76% peak-to-trough plunge. One of those missteps was a relentless focus on virtual reality and the metaverse, despite the projects generating little revenue and burning tens of billions of dollars in cash.

But Zuckerberg came into 2023 with a commitment to efficiency. He slashed costs across the board, tempered the company’s investments in the metaverse, and turned his attention to artificial intelligence. In fact, Meta had 66,185 employees at the end of Q3, 24% fewer than at the same time last year. Plus, Zuckerberg says he’s currently pulling some employees off non-AI projects and assigning them to AI instead, which will be cheaper than hiring new staff.

So, how is Meta monetizing AI? The company is grappling with a competitive threat from ByteDance’s TikTok platform, where users create bite-sized video clips to entertain their followers. TikTok’s AI-powered recommendation engine is its secret sauce, because it learns what each user likes to watch and then feeds them more content that its algorithm expects them to like. Meta answered with a short-form video feature called Reels which also uses AI-based recommendations, and the company estimates it has led to a 40% increase in time spent on Instagram since launching in 2020. 

But AI content recommendations have spilled over to other parts of Meta’s social media platforms. AI now feeds users photo-based and text-based content, too, and the company says it has driven a 7% increase in time spent on Facebook (and a 6% increase on Instagram) this year alone. 

Fastest revenue growth in two years

Meta’s social media platforms host an estimated 3.9 billion users each month, so they remain among the best places for businesses to advertise to potential customers. The company is making it easier than ever for businesses to craft engaging ad content using — you guessed it — AI. 

Meta’s Advantage+ tool allows advertisers to test up to 150 different campaigns at once, using a machine learning algorithm that determines the variations most likely to resonate with specific customers. The company says more than half of its advertisers are now using Advantage+ Creative tools to optimize the images and text in their ads. 

The more traction businesses generate from their ads on Meta’s platforms, the more marketing money they are likely to spend with the company. Over the last 18 months, the entire digital advertising industry has struggled due to worrying economic circumstances that caused companies across almost every industry to tighten up their marketing budgets. But Meta’s revenue has gradually accelerated throughout this year, and in Q3 it came in at a record-high $34.1 billion.

That was a 23% increase year over year, its fastest growth rate since Q3 2021. Combined with Meta’s cost cuts, its strong revenue produced a blockbuster bottom-line result, with net income (profit) surging 164% to $11.5 billion. That is key to the premise that Meta will soon achieve a $1 trillion valuation. 

Image source: Getty Images.

On the way to the $1 trillion club

Meta Platforms currently has a market capitalization of about $770 billion, so its stock would need to rise 30% to place the company in the $1 trillion club. It could get there in the next few months based on its earnings alone. Its strong Q3 profit translated to $4.39 in earnings per share, boosting its trailing 12-month earnings to $11.33.

Based on Meta’s current stock price of $289, it trades at a price-to-earnings (P/E) ratio of about 25. That means Meta stock would have to rise 17% just to trade in line with other big tech companies, represented by the 29.9 P/E ratio of the Nasdaq-100 index.

However, Wall Street analysts expect Meta’s fourth-quarter earnings will come in at $4.56 per share, which would bring its 2023 total to $14.13 per share. Assuming its stock price remained where it is now, Meta would be trading at a P/E ratio of just 20.4. That means it would have to gain 46% just to trade in line with the rest of the tech sector. A rise of that magnitude would place it comfortably in the $1 trillion club.

Given Meta’s presence in AI, its resurgence in revenue growth, and its powerful earnings potential, investors could make the argument its stock deserves a premium to the broader market instead. But in any case, it certainly looks cheap right now, and joining Apple, Microsoft, Amazon, Alphabet, and Nvidia in the $1 trillion club is almost a foregone conclusion.