3 fast-growing stocks that could be worth $1 trillion in ten years – or sooner

By | December 21, 2023

cloud computing team company

It’s not the run-of-the-mill companies that become trillion-dollar megacaps. Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), Alphabet (NASDAQ: GOOGL)And Apple (NASDAQ: AAPL) have all crossed that threshold and delivered big returns for investors, but they won’t be the last. If you’re not paying attention, you can easily miss the next crop of companies that have the potential to join the trillion-dollar market cap club. The following three stocks have the growth profiles, size and competitive advantages that will likely propel them into this rare club within the next decade.

1.Salesforce

Sales team (NYSE: CRM) dominates the customer relationship management (CRM) software industry, dwarfing the market share of its closest competitors. Salesforce has become a standard tool for professionals in customer-facing roles, and the product suite is a trusted resource to improve the efficiency and overall performance of sales teams. The company has built a wide moat based on high switching costs and network effect, thereby strengthening its competitive position.

A group of smiling people on the street holding up a large cloud computing logo.A group of smiling people on the street holding up a large cloud computing logo.

Image source: Getty Images.

Salesforce is transitioning into a new era as it matures amid global macroeconomic weakness. The company’s growth rate has been slowing and the focus has shifted to profitability by controlling operating costs. That’s been a common theme among tech companies over the past year.

CRM Revenue (Quarterly Year-over-Year Growth) ChartCRM Revenue (Quarterly Year-over-Year Growth) Chart

Salesforce has capably managed this shift by cutting spending budgets. This has resulted in adjusted operating margins exceeding 30%, making the cloud software provider solidly profitable. Salesforce expects free cash flow to grow by more than 30% this fiscal year. These results clearly show that this company can generate strong cash flows, making it a less speculative investment than in previous years during the high growth, high breakdown phase. The economy is still expanding at an impressive pace, and there is a chance it will accelerate again as economic conditions improve. Renewed sales spending and product development could catalyze future growth, especially if AI improvements drive demand for the platform.

Salesforce’s market cap is currently around $250 billion. It trades at a very reasonable price-to-earnings (P/E) ratio below 30 and a price-to-cash flow ratio around 26. If earnings continue to outpace revenue growth, the valuation is fair enough for Salesforce’s market. will quadruple in the next ten years.

2.Adobe

Adobe (NASDAQ: ADBE) has been one of the leading providers of creative software for decades. Customers use the suite of tools to create digital images, videos, graphics and documents. The company has added additional features over the years, such as marketing, publishing, and analytics, cementing Adobe as the market leader in content creation software.

Adobe’s 12% growth rate last year follows a similar trend to Salesforce. The company’s growth is slowing, but still growing at an impressive pace. Adobe managed to increase profit margins by controlling costs, and profit growth is outpacing revenue. The company achieves an operating margin of almost 35% and is an excellent cash flow generator.

ADBE Earnings Chart (TTM).ADBE Earnings Chart (TTM).

AI presents both potential threats and opportunities for Adobe. The company has invested heavily in AI capabilities for years, increasingly woven into its product suite to support digital creators in new ways. However, there are concerns that AI could change the competitive landscape and ultimately hurt demand for Adobe products. This creates uncertainty for investors, but also prevents upside potential.

Adobe’s market cap is about $275 billion, with a forward price-to-earnings ratio of 30. If the company’s offering isn’t deeply disrupted by the proliferation of AI, it’s a strong candidate to reach $1 market cap in the coming years trillion dollars to surpass.

3. ServiceNow

Service now (NYSE: NOW) offers a popular IT workflow platform with excellent traction among large enterprise customers from all industries. It has become an integral part of business operations and effective digital transformation for almost 1,800 companies. The product quality and deep penetration of the target market have secured ServiceNow’s position for years to come.

The recent results are very encouraging. ServiceNow reported 25% revenue growth last quarter, along with nearly $200 million in free cash flow. The company’s profit growth exceeds sales thanks to its operating cost discipline and economies of scale. ServiceNow also boasts a 98% customer retention rate, indicating high customer satisfaction and effective sales processes. These are exactly the characteristics that investors should identify in stocks with sustainable growth catalysts.

ServiceNow’s forward price-to-earnings ratio is near 60, so it’s slightly more expensive than the other stocks discussed above. Its high growth rate and high cash flow generation create a premium, so it’s no surprise that the stock has pricier valuation ratios. Even if aggressive expectations need to be met, ServiceNow’s prospects create the opportunity to grow its market cap from $140 billion today. It still has a longer way to go than Adobe or Salesforce, but a few more years of strong execution should help it close that gap.

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Ryan Downie holds positions at Alphabet, Microsoft, Nvidia and Salesforce. The Motley Fool holds positions in and recommends Adobe, Alphabet, Apple, Microsoft, Nvidia, Salesforce, and ServiceNow. The Motley Fool recommends the following options: long January 2024 $420 calls at Adobe and short January 2024 $430 calls at Adobe. The Motley Fool has a disclosure policy.

3 Fast-Growing Stocks That Could Be Worth $1 Trillion in Ten Years — Or Sooner was originally published by The Motley Fool

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