Recently, the bull market celebrated its two-year anniversary. Since 2024 began, the ageless Dow Jones Industrial Average, broad-based S&P 500, and growth-dependent Nasdaq Composite have reached multiple record-closing highs.
While artificial intelligence (AI) and stock-split euphoria have played a role in sending the market to new highs, it's Wall Street's trillion-dollar companies that have been the foundation of this rally.
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Not accounting for inflationary changes over time (sorry, I'm not including the Dutch East India Company), there have been 10 public companies that have reached the trillion-dollar market cap plateau, of which nine can be bought and sold on U.S. exchanges:
Apple(NASDAQ: AAPL)
Microsoft(NASDAQ: MSFT)
Nvidia(NASDAQ: NVDA)
Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG)
Amazon(NASDAQ: AMZN)
Meta Platforms(NASDAQ: META)
Tesla(NASDAQ: TSLA)
Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B)
Taiwan Semiconductor Manufacturing(NYSE: TSM)
Saudi Aramco (not traded on U.S. exchanges)
The first seven companies are members of the "Magnificent Seven," with Tesla being the only constituent that doesn't currently possess a trillion-dollar market cap. Meanwhile, Warren Buffett's Berkshire Hathaway and global chip-fabrication juggernaut Taiwan Semi both recently snuck above the $1 trillion mark for the first time.
While all 10 of these highly influential businesses bring their own unique blend of competitive advantages and innovation to the table, their outlooks can meaningfully differ.
Wall Street's largest businesses aren't automatically worth buying
Just because a company has, or previously had, a trillion-dollar valuation, it doesn't mean investors should automatically buy it. While all 10 of these companies offer a rich history of operating excellence, some have clearly identifiable red flags that may make them worth avoiding.
Take Nvidia as a perfect example. Shares of the AI leader have catapulted higher by 861% since the start of 2023, as of the closing bell on Oct. 28. This is a reflection of its H100 AI-graphics processing units being the most-chosen chips by businesses running high-compute data centers.
But it's worth recognizing that no next-big-thing technology for three decades has side-stepped an early innings bubble-bursting event. Without exception, investors have overestimated how quickly a new technology or innovation would gain utility, leading to eventual disappointment. Nothing suggests that AI is going to be the exception, which bodes poorly for Nvidia.
Some investors might be attracted to Apple given its sizable cash pile, more than $700 billion in share repurchases since 2013, and its No. 1 market share in domestic smartphones. To add, CEO Tim Cook is overseeing a shift in Apple's operating model to one focused on higher-margin subscription services.
But a deeper dive into Apple's revenue breakdown shows that sales of its physical products, including iPhone, Mac, and iPad, have notably weakened over the last two years. Apple has commanded a premium valuation because of its consistent growth. However, with its growth engine stalling, Apple's forward price-to-earnings (P/E) ratio of 31 sticks out like a sore thumb.
A strong case can be made that electric-vehicle (EV) maker Tesla will underperform the broader market, too. Even though Tesla has successfully built itself from the ground up to mass production and is working on its fifth consecutive year of generally accepted accounting principles (GAAP) profit, it sports a nosebleed valuation for an auto stock.
Through the first nine months of 2024, 51% of Tesla's pre-tax income can be traced to unsustainable sources, such as regulatory tax credits and interest income on its cash. Further, CEO Elon Musk doesn't have the best track record of delivering promised innovations.
While not all of these current and former trillion-dollar companies are currently worth buying, one stands out for all the right reasons and is nothing short of a screaming buy right now.
Image source: Getty Images.
Here's the trillion-dollar stock you'd be smart to buy
The one trillion-dollar company that's an exceptional value right now is Alphabet, the parent company of internet search engine Google, streaming platform YouTube, cloud infrastructure service platform Google Cloud, and autonomous ride-hailing service Waymo, among other ventures.
If Alphabet has a weakness, it's that its business is undeniably cyclical. A little over 76% of the company's $84.7 billion in net sales during the June-ended quarter came from advertising. Businesses aren't shy about reducing their marketing budget at their first hint of trouble for the U.S. or global economy.
At the same time, Alphabet benefits from the non-linearity of the economic cycle. Out of the 12 U.S. recessions since the end of World War II in September 1945, nine have resolved under 12 months, with none surpassing 18 months in length. By comparison, almost all economic expansions have endured for multiple years, if not a full decade on rare occasion. Ad-driven operating models are well-positioned to benefit from long-winded periods of growth.
Another reason investors can confidently buy shares of Alphabet is because of its global internet search dominance. As of September 2024, Google accounted for 90% of worldwide internet search share, per GlobalStats. It's held at least a 90% share of global search each month dating back more than nine years. This makes it the logical go-to for businesses wanting to target consumers and affords Alphabet exceptional ad-pricing power.
However, Alphabet's future looks to be very much reliant on Google Cloud. Alphabet's cloud infrastructure service platform is the third-largest in the world (10% market share, as of the June-ended quarter), and it shifted to recurring profitability in 2023. Businesses are still, arguably, very early in their cloud spending cycle, which bodes well for Google Cloud's long-term growth potential.
To build on the above, Google Cloud's incorporation of generative AI solutions should accelerate this segment's growth rate.
Alphabet is sitting on a mountain of cash, too. It closed out the June quarter with $100.7 billion in cash, cash equivalents, and marketable securities, which gives it the ability to pay a dividend, as well as aggressively repurchase its stock. Alphabet's outstanding share count has declined by close to 11.6% from its peak, which is providing a boost to the company's earnings per share (EPS).
The final piece of the puzzle that makes Alphabet a screaming buy among trillion-dollar companies is its valuation. Shares can be scooped up by opportunistic long-term investors right now for 19 times consensus EPS for 2025 and less than 14 times forecast cash flow in the upcoming year. To put this into context, this represents an 18% discount to Alphabet's average forward P/E ratio over the trailing-five-year period, and a 23% discount to its cash flow over the same span.
Should you invest $1,000 in Alphabet right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
