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Over the past two decades, there have been technical changes in major market indices. For example, in 2004, general electric and exxon mobil They remained at the top in terms of market capitalization, recording $319 billion and $283 billion, respectively.
Just 20 years later, looking back at the top of the charts, it’s easy to see the changing of the guard.tech titans apple and microsoft are now in a class by themselves, each with a market capitalization of $3 trillion (as of Thursday morning). A review of the top 10 further proves the dominance of technology, as 7 of the top 10 are industry-leading technology companies.
One of the biggest drivers of the stock market’s rise over the past year or so has been advances in the field of generative artificial intelligence (AI). The potential for far-reaching productivity gains is controversial, and if adoption accelerates, it could add to the next group of “trillionaires.” There are two stocks that I believe will join this exclusive group over the next seven years, if not sooner, driven by the growing demand for AI.
Image source: Getty Images.
1. Nvidia
Nvidia‘s (NVDA -0.95%) With a current market cap of $1.54 trillion, it could eventually join the $3 trillion club, although the timing is up for debate. Stocks would need to rise about 95% from Wednesday’s closing price to reach that threshold, representing an annual increase of about 10% between now and 2030, which is still within easy reach. It is.
But that doesn’t mean there aren’t challenges along the way. One of the biggest headwinds may be Nvidia’s recent stock price rally, which has risen 239% in the last year alone. However, its importance in the field of AI cannot be overstated. In each of the past two quarters, the company has achieved triple-digit sales and profit growth year-over-year, and management expects more similar growth.
Nvidia serves multiple markets, each representing a growth opportunity. Nvidia has long held a commanding lead in the discrete desktop graphics processing unit (GPU) space, recently controlling more than 80% of the market. However, record sales during the pandemic and subsequent economic downturn led to an industry-wide slump. After nearly three years of continuous decline, GPU shipments are now finally It’s starting to recover, and this should lead to further gains for Nvidia.
But it’s the combination of AI and cloud computing that could propel the company to new heights. Nvidia has established itself as the gold standard for his AI and is the go-to for helping move data through the ether. But don’t just take my word for it. The company has an estimated 95% share of the GPU data center market, which is the foundation of cloud computing, said Angelo Zino, an analyst at CFRA Research. Furthermore, when it comes to processors used for machine learning (a well-established technique used in many AI tools), Nvidia is unrivaled, with an estimated market share of 95%, according to New Street Research. These achievements made Nvidia a natural choice for him to accelerate generative AI.
Estimates vary, but it is clear that trillions of dollars are at stake.analyst of morgan stanley It has been suggested that there is a $6 trillion opportunity in generative AI. goldman sachs The market value is estimated at $7 trillion. As a leading provider of AI processors, Nvidia is well positioned.
Data centers and cloud infrastructure providers are scrambling to increase the capacity of their systems to meet the computational demands of generative AI. This trend is expected to continue for years, giving NVIDIA the fuel it needs to join his $3 trillion club.
2. Amazon
Amazon (AMZN 0.87%) With a current market cap of $1.63 trillion, many believe it’s only a matter of time before the company joins the $3 trillion club. The stock only needs to rise about 85% from Wednesday’s closing price to reach this threshold. That translates into profits of about 10% annually between now and 2030, a hurdle well within Amazon’s reach.
There are a number of catalysts that could drive the company’s future growth. Decades of high inflation have tightened consumer spending as people have to make difficult choices to make ends meet. This, in turn, hurt Amazon’s industry-leading online retail business. Amazon is seeing signs that the economy is finally recovering, with e-commerce sales increasing 11% in the first three quarters of 2023. Further improvements in the economic outlook could provide a further boost.
Global e-commerce sales are expected to increase by more than 9% in 2024 to more than $6.3 trillion. As the world’s largest digital retailer, Amazon is well-positioned to ride the wave of e-commerce growth.
Another growth area for the company is digital transformation led by cloud computing. Amazon Web Services (AWS) is the global leader in cloud infrastructure services, accounting for 31% of the market, according to data provided by market analysis firm Canalys. In the face of the economic downturn, many companies scaled back their cloud spending, but growth is returning. Spending on cloud services is expected to increase by 16% in the third quarter of 2023 and further accelerate as economic conditions improve. As an industry leader, Amazon is poised to benefit from this trend.
Perhaps Amazon’s biggest potential growth driver is generative AI. The technology has proven effective for summarizing and drafting emails, searching for data on the Internet or in company warehouses, and even writing and debugging computer code, with new use cases emerging every day. has been discovered. As a result, there has been a mad dash for adoption of these AI models. However, the cost of creating these systems from scratch is prohibitive, as is the mountain of data required to train the basic generative AI models.
As a result, cloud providers, including AWS, are well suited to provide generative AI services to their users. Amazon already offers dozens of these models and continues to roll out a suite of tools to help cloud customers benefit from AI.
A recovery in the e-commerce market, a rebound in cloud spending, and increased adoption of AI should give Amazon the momentum it needs to join the $3 trillion club.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Danny Vena has held positions at Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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