Not that it’s a contest, but a company’s relative size — as measured by revenue, earnings, or market cap — can be a clear indication of its past and present success. More to the point, relative changes to any of these metrics can help investors spot where the real growth is … and isn’t.
With that as the backdrop, here’s a rundown of three companies that could be bigger than Apple (NASDAQ: AAPL) within the next decade. And that’s saying something. The iPhone maker’s current market cap stands at $2.9 trillion, making it the world’s second-biggest publicly traded company (right behind Microsoft).
1. Broadcom
When most investors think of artificial intelligence (AI) stocks, names like Microsoft or Nvidia come to mind. Broadcom (NASDAQ: AVGO) generally doesn’t.
But maybe it should.
Broadcom manufactures many of the components you’ll find in wireless connectivity tech like Wi-Fi routers and wireless modems. It also makes fiber-optic connectivity equipment and Ethernet networking solutions, as well as software that gets the most out of this hardware. Without this company’s solutions, the wireless connectivity landscape would look considerably different.
There’s a very specific reason Broadcom could be a bigger company than Apple 10 years from now, though. That’s the market Broadcom is quietly penetrating: artificial intelligence (AI). In short, this company makes the chips that AI data centers need but most people never think about.
For example, take Broadcom’s 200G/lane vertical-cavity surface-emitting laser (VCSEL), unveiled earlier this year. This is the industry’s first such fiber-optic equipment capable of handling the massive loads of digital data being processed and delivered by AI platforms.
Also earlier this year, the company introduced the industry’s first 51.2 terabits-per-second (Tbps) co-packaged optics Ethernet switch, which not only connects multiple processors to one another at blazing-fast speed, but does it using 70% less power than comparable tech. This equipment doesn’t compete with Nvidia’s processors, but it does complement Nvidia’s wares.
All told, Broadcom expects to sell on the order of $10 billion worth of AI-oriented chips this year. For perspective, that’s roughly 10% of the company’s projected 2024 top line. This amount still only scratches the surface, though. Straits Research believes the AI infrastructure market is poised to grow at an annualized pace of nearly 21% per year through 2030.
Already a leader in this overlooked piece of the AI market, Broadcom is positioned to capture more than its fair share of its growth. That growth could readily push its current market cap of $650 billion beyond Apple’s down the road. This is particularly true since Apple’s business is changing from a growth-oriented one driven by iPhone sales to a slower-moving, value-oriented/cash-cow enterprise led by its services arm.
And speaking of value…
2. Berkshire Hathaway
While Broadcom is a technology growth stock, not every great opportunity has to come from this category of tickers. Indeed, don’t be surprised to see incredible growth from a name at the extreme other end of this spectrum — a value-oriented holding like Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).
Surprised? It would be a bit unusual if you weren’t. Value stocks are so-called largely because these companies aren’t capable of great growth. Their strong suit is consistent cash flow that often translates into reliable dividends. It’s no secret that Warren Buffett — the chief guru behind Berkshire Hathaway — is content to leave $189 billion of Berkshire’s cash uninvested simply because he doesn’t see any such stocks worth buying at their present price.
But there’s a very specific strategic reason you might want to consider stepping into a stake in Berkshire Hathaway sooner rather than later: We may be on the verge of a years-long wave of strong performance from value stocks.
Underpinning this prediction is the current economic backdrop. Interest rates are high, inflation is high, and debt (corporate as well as consumer) is both high and expensive. Although not necessarily recession-causing, these are conditions that often work against growth stocks but aren’t overly problematic for value stocks. A handful of value-oriented sectors with strong pricing power — like utilities and consumer staples — can thrive in such an environment.
Sure, it’s a bit concerning that Berkshire would rather do nothing with its idle cash than at least take a shot on a low-risk dividend payer. If its capital isn’t put to work, the company’s market cap — currently near $900 billion — may never reach or eclipse Apple’s current capitalization of just under $3 trillion.
Don’t worry about it too much, though. Most of Berkshire Hathaway’s value is represented by existing holdings in value stocks or privately owned companies. And over the coming decade, Buffett or his deputies will surely find a few more opportunities worth diving into.
3. Amazon
Last but not least, add e-commerce giant Amazon (NASDAQ: AMZN) to your list of companies that could be bigger than Apple 10 years from now.
It has one of the shortest distances to travel. Amazon’s current market cap is a whopping $1.9 trillion versus Apple’s $2.9 trillion. Granted, Amazon’s highest-growth days are also likely in the rearview mirror, and even if Apple’s future isn’t as compelling as its past it’s still making forward progress.
There is something new about Amazon, however, that could still easily catapult it beyond Apple by 2034. That’s the fact that Amazon is finally focused on profitability as much as — if not more than — it is on revenue growth. Last quarter’s net income margin percentage of 6.4% (of revenue) is the most profitable the company’s ever been since the worst of the COVID-19 pandemic, which was an obvious boon for its business. The same quarter’s gross profit margin of 47.6% is also a company record, extending a long streak of steady improvement since 2012.
What’s driving this margin growth? Most investors know the company’s cloud computing business is considerably more profitable than its e-commerce operation. Indeed, although Amazon Web Services (AWS) only accounts for about 16% of Amazon’s top line, AWS is responsible for roughly two-thirds of the company’s operating income. This business’s growth is doing more than its fair share of the heavy lifting.
The piece of the bullish thesis not fully appreciated by interested investors, however, is actually on the e-commerce front. This arm is now more profitable than it’s ever been. Nearly 6% of last quarter’s North American sales were turned into operating income, while its longtime money-losing international e-commerce operation has swung back into the black, after finally achieving profitability during and because of the pandemic.
Whatever’s been missing from the formula — maybe it was just scale — is now in place. Most investors don’t seem to see this yet, but they will, as Amazon continues to make the most of its massive size and its now fine-tuned operation.
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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. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and 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.
Prediction: 3 Stocks That Will Be Worth More Than Apple 10 Years From Now was originally published by The Motley Fool
Source: finance.yahoo.com