Since Wall Street’s major stock indices bottomed in October 2022, the floodgates have been wide open for optimists. Dow Jones Industrial Averagereference S&P 500and powered by innovation Nasdaq Composite Index all reached record highs at the end of the year.
However, the “Magnificent Seven” deserve most of the credit for propelling Wall Street to new heights. The seven members of the Magnificent Seven, which include artificial intelligence (AI) giant Nvidiatech giant Appleand a software colossus Microsoft currently have, or will have, a market capitalization of one trillion dollars.
Professional and ordinary investors alike are captivated by the search for the next company, or group of companies, that can join this exclusive trillion-dollar club.
While nothing is set in stone, four high-growth companies with perceived sustainable competitive advantages and current market valuations below $100 billion have the tools and intangibles to become trillion-dollar companies by 2040 and join the likes of Nvidia, Apple and Microsoft.
Palantir Technologies (current market cap $62 billion)
This early hypergrowth stock that has a reasonable trajectory to become a trillion-dollar company in the next 16 years is a specialist in AI-inspired data mining. Palantir Technologies (NYSE: PLTR).
What makes Palantir so special is that its services can’t be duplicated by any other company at scale. The AI-driven Gotham platform handles data collection and mission planning, among other tasks, for federal governments. Palantir typically lands four- or five-year government contracts that generate predictable sales and cash flow.
But there is also a tangible ceiling to be expected with Gotham. Given that Palantir’s management team does not allow certain entities to access its Gotham platform (e.g., China), the growth runway for this proven operating segment is limited.
The lion’s share of Palantir’s future growth is expected to come from its Foundry platform. That’s its enterprise-focused service, designed to help companies better understand their data to streamline operations. As of March 31, the company had 427 commercial customers worldwide, a 53% increase from the same period last year. In other words, Foundry is still growing. very first stages of expansion.
If Palantir can get large companies to use Foundry, there’s a good chance it can sustain a 20% (or higher) sales growth rate.
Airbnb (current market cap $93 billion)
A second fast-growing company with a market cap below $100 billion that has a realistic chance of reaching a $1 trillion valuation by 2040 is the accommodation and stay platform. Airbnb (NASDAQ: ABNB).
The travel industry has been ripe for disruption for decades, and Airbnb appears to have a variety of solutions. Its stay and accommodation platform is taking on the traditional hotel industry head-on. After processing about 140 million bookings in 2018, Airbnb expects to book more than 500 million room nights and experiences in 2024, based on the 132.6 million it recorded in the first quarter.
What’s incredible to think about is that Airbnb’s marketplace only has “over 5 million hosts.” With about 1 billion homes worldwide, there’s room for massive expansion of the number of platform hosts in the coming years.
But Airbnb isn’t just about disrupting the hotel market. Travel is an estimated $11.1 trillion industry (by 2024), and Airbnb can easily push into other tourism channels to grab a significant piece of the pie. In addition to its Experiences segment, which works with local experts to guide travelers on adventures, Airbnb can, for example, partner with airlines, restaurants, and theme parks to retain a larger percentage of traveler spending.
Keeping travelers within its ecosystem of products and services is the game-changer that could make Airbnb the most valuable company in travel.
Sea Limited (current market cap $42 billion)
The third supercharged growth stock that has the catalysts to become a trillion-dollar company by the early 2040s is Singapore-based conglomerate. Limited Sea (NYSE: SE).
The “recipe” that could take Sea from a reasonable valuation of $42 billion to $1 trillion in 16 years involves having all three of its operating segments running at full capacity.
At the moment, its digital entertainment division (known as “Garena”) is responsible for the lion’s share of its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Free Fire remains one of the most popular mobile games in the world, with 8.2% of Garena’s nearly 595 million quarterly active users paying to play its mobile games in the first quarter. considerably a higher rate of pay than the industry average.
The second segment that could drive significant growth is SeaMoney, the company’s digital financial services business. Many of the Southeast Asian countries where Sea offers its services are chronically underbanked. Providing basic financial services in emerging markets could be SeaMoney’s ticket to rapid sales and profit growth.
But the deciding factor across all segments will likely be e-commerce platform Shopee. A burgeoning middle class in Southeast Asia and Brazil has embraced Shopee with open arms. After generating $10.3 billion in gross merchandise value (GMV) on its site in 2018, Sea’s e-commerce site is expected to generate $94.4 billion in GMV in 2024, according to its first-quarter results.
PayPal Holdings (current market cap $63 billion)
A fourth hypergrowth stock that could rival Nvidia, Apple and Microsoft as trillion-dollar companies by 2040 is the financial technology (“fintech”) leader PayPal Funds (NASDAQ:PYPL).
While PayPal faces increasing competition in the digital payments space, most of its key KPIs are trending in the right direction. For example, total payment volume (TPV) increased 14% on a constant currency basis (i.e., excluding currency fluctuations) to nearly $404 billion in the quarter ended March. Despite PayPal’s challenges, payment transactions and TPV have consistently grown by double-digit percentages.
Even more important for PayPal’s future is that active accounts are becoming more engaged. At the end of 2020, the average active user had made 40.9 payments in the last 12 months (TTM). But by the end of March 2024, that number had increased to 60 payments in the TTM for active accounts. If active account engagement continues to improve, PayPal’s gross profit should continue to grow.
Also don’t overlook the role that relatively new CEO Alex Chriss can play. Chriss previously led IntuitChriss is a small business specialist, so he knows a thing or two about innovation, cost control and what small business owners want. Chriss has tightened his company’s belt in some areas, while unveiling a new advertising platform that should benefit from long-term economic expansions.
We are still in the very early stages of digital payments adoption and expansion, which bodes well for PayPal’s future.
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Sean Williams holds positions in PayPal. The Motley Fool holds positions in and recommends Airbnb, Apple, Intuit, Microsoft, Nvidia, Palantir Technologies, PayPal, and Sea Limited. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
Prediction: 4 Hypergrowth Stocks Under $100 Billion That Can Join Nvidia, Apple, and Microsoft as Trillion-Dollar Companies by 2040 was originally published by The Motley Fool