Trillion-Dollar Club

By: Phil Kernen

Recently, Tesla crossed the trillion-dollar threshold in market value.  A trillion dollars isn’t what it used to be, but it remains a big deal and a monumental market milestone.  Four other U.S. companies are current members, all of which anyone will recognize.  One non-U.S. company is in the club, Saudi Aramco. The Saudi Arabian state-owned oil producer founded in 1933, which began trading publicly in 2019, is worth 2.01T. Data is as of 10-29-21.

Of those currently in the club, Tesla required the least time to reach a trillion-dollar valuation.  It took 18 years from its first day as a company and only 11 years from its initial public offering in 2010. The most recent price increase derives from the announcement by Hertz that they would buy 100,000 Teslas for their rental fleet.  Further, Hertz would pay full price rather than the discounted costs so commonly seen in fleet purchases. In addition to the billions in expected revenue, Tesla also gains the marketing benefit of putting new drivers in an electric vehicle for the first time who may not otherwise consider such an option.

Meanwhile, the speed of its growth highlights some eye-popping comparisons. Toyota Motors is the second most valuable car company after Tesla but carries a market cap one-quarter as large, valued at $250 billion.  Yet, Toyota sells 20 times more cars than Tesla, delivering 10 million each year compared to 500,000 from Tesla in 2020. After three quarters, Tesla is on track to sell 900,000 units in 2021, so that multiple will drop, yet the valuation gap grows still wider because investors like the rapid growth.

Who is next?

Except for Saudi Aramco, the biggest trillion-dollar organizations are tech companies. And more tech companies are the likeliest candidates to next cross one trillion dollars in market cap, including Facebook (0.88T), Nvidia (0.62T). Technically, Tesla was the sixth company to join the club. Meta, formerly known as Facebook, crossed the mark earlier in 2021 but has since retreated as it faces scrutiny over its business model following the release of the Facebook files.  These internal documents reflect the company’s knowledge of flaws in its platform that cause harm to its users. Meta will likely regain trillion-dollar status as it responds to criticism, makes improvements, and pivots towards its metaverse vision.

Nvidia, which makes semiconductors for video gaming and data center customers, is also expected to move higher along with continued growth in revenues and earnings.  Second-quarter revenue increased 68%.  Despite supply chain challenges, sales momentum will continue with an accompanying increase in their share price. A 70% increase is all that is needed to reach one trillion in market value.

The other members of the top ten are less likely to cross one trillion soon.  Tencent, a Chinese internet-based technology company, faces challenges. Growing competition and political and regulatory pressure from the Chinese Communist Party will limit the speed at which it grows in the future.   The other non-tech top-ten name is Berkshire Hathaway (0.65T). The investment vehicle of Warren Buffett has a long history and has benefitted from more than a decade of generally rising equity markets. While this trajectory might continue further for stock prices in general and Berkshire in particular, we don’t expect it to push them over one trillion in market cap soon.

Disclosure: This is for informational purposes only and any reference to a specific company does not constitute a recommendation to buy or sell that company. The reader should not assume that an investment in the securities identified or described, was or will, be profitable.    

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