At the beginning of 2022, Apple(NASDAQ:AAPL) became the first company to reach a market capitalization of $3 trillion.
This was a valuation unimaginable just a decade ago, when the world's largest company (also Apple) was worth $600 billion. And then people said he was overrated. Today, however, three companies boast a valuation of more than $3 trillion: Apple, Nvidia(NASDAQ:NVDA)And Microsoft(NASDAQ:MSFT) — and we should see several more join the fray over the next few years.
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One factor that unites the three members of the $3 trillion club is that they are all linked in one way or another to the growth of the sector. artificial intelligence. The next members of the group will likely benefit from increasing spending and the use of AI in business and daily life. However, one company in particular stands to benefit greatly from its massive investments in AI, which could lead its stock to double in value over the next few years, taking it to a market capitalization of $3 trillion.
I see Metaplatforms(NASDAQ:META) join the $3 trillion club by 2028. Here's how AI will help it get there.
Image source: Getty Images.
Meta's business has long relied on artificial intelligence, aka “the algorithm.” The algorithm is responsible for determining what content to show a user and when to do it, whether it's a photo from a friend, a video from a professional content producer, or an advertisement from 'a small business. In fact, Meta used multiple machine learning systems to determine the best content recommendations for each content type across its different apps and surfaces.
However, the success of major language models led him to change course. The company is currently developing a generalized content recommendation system across all surfaces, inspired by the power of large-scale linguistic models. And it works better than its old algorithms. Another benefit of this development is a more efficient software engineering team, which can work on a unified model instead of a set of individual recommendation engines.
Using generative AI, Meta brings the ability to help marketers create hundreds of different iterations of their ads. It has the scale to test each of these ads on its platform and optimize targeting and creative to deliver the best possible results. CEO Mark Zuckerberg sees a day when an advertiser can simply tell Meta their business goal and budget, and it will take care of the rest. This would lead to significant sales growth because it would open the door for more marketers with smaller creative teams to advertise more on Facebook and Instagram.
Meta also introduced the ability for businesses to create their own AI chat agents in WhatsApp and Messenger last year. These represent an opportunity to finally monetize its messaging apps by giving businesses a way to interact with potential customers at scale.
Finally, generative AI has the potential to lead to more user-generated content. In fact, Meta has introduced a new feature in Meta AI, its in-app AI chatbot, that allows users to take AI-generated images and share them in their feed or stories, or post them as Facebook profile picture. It also doesn't hide the fact that they are AI-generated, encouraging users who see the images to create their own images based on which ones they like.
Investors can paint a clear picture of how artificial intelligence can increase engagement in Meta's applications, improve their monetization, and ultimately lead to more effective engineers. All of this leads to tangible financial results like increased revenue and improved profit margins. That's more than many big companies riding the AI wave can say.
Meta has a market cap of just under $1.5 trillion as of this writing. To reach $3 trillion by 2028, the stock will need to produce compound annual returns of around 20%. This seems within reach for the tech sector, especially if AI helps accelerate profit growth.
Analysts are currently modeling revenue growth of 15% next year. If Meta can continue to grow revenue at this rate over the next three years, it will be on track to reach a $3 trillion valuation.
In the near term, Meta's massive capital expenditures to support AI development will weigh on its operating margin, as more and more of its current expenses manifest as long-term depreciation expenses. However, over time the impact of these expenses will dissipate as Meta continues to grow. Additionally, since depreciation is a non-cash expense, this means free cash flow will remain strong, giving management room to repurchase stock. Ultimately, this should lead to strong earnings per share growth and justify a high earnings multiple.
Meta shares currently trade at just 22.5 times analysts' 2025 earnings estimate. For comparison, Apple, Microsoft, and Nvidia trade at 31.6, 32.5, and 32.6 times their estimates. forecast profits. If Meta's earnings multiple rises slightly toward the mid-25s, as it posts strong financial results and continues to repurchase shares, it should produce returns high enough to surpass the $3 trillion mark .
Of course, there's no way to know for sure that Meta will be able to reach this milestone. However, based on everything we know today, the company is poised for growth thanks to its advancements in AI, and the market is offering a great price on the stock.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy holds positions in Apple, Meta Platforms and Microsoft. The Motley Fool holds positions and recommends Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
