There's been an undeniable shift over the past 20 years. During that time, technology companies have climbed the ranks of the world's most valuable companies, which was once the exclusive domain of industrial and energy concerns. For example, in 2005, ExxonMobil and General Electric were top of the class when measured by market cap, valued at $375 billion and $362 billion, respectively. Two decades later, it's the world's technology bellwethers that lead the pack.
Topping the charts are three of tech's most recognizable names, which need little introduction. Artificial intelligence (AI) chipmaker Nvidia currently leads the pack at $4.3 trillion (as of this writing), with its stock recently hitting new all-time highs. Software giant Microsoft also notched a new record this week, cracking the $4 trillion mark. Rounding out the top three is iPhone maker Apple, with a market value of $3.1 trillion.
With a market cap of $1.9 trillion, it might seem premature to suggest that Meta Platforms (META +0.40%) has been earmarked for admission in the $3 trillion club. However, the company's recent performance has been exemplary, and the stock has soared 33% so far this year (as of this writing), following 65% gains in 2024. Its winning streak appears poised to continue.
The ever-increasing reach of its social media platform, ongoing leverage of digital advertising, and novel strategy for leveraging AI could combine to help Meta earn its membership in this exclusive fraternity.
Image source: Getty Images.
A digital advertising powerhouse
The dawn of generative AI in late 2022 marked a pivotal point in the evolution of technology, and companies that were able to capitalize on that opportunity have reaped the rewards. Meta had already established expertise in the use of algorithms to advance its business, and generative AI took that to the next level. The company not only uses AI to surface more relevant content on its social media platforms but also provides a suite of AI-powered tools to assist merchants who use its digital advertising services.
The results have been profound. In the second quarter, Meta's revenue of $47.5 billion jumped 22% year over year, driving diluted earnings per share (EPS) of $7.14 up 38%. CEO Mark Zuckerberg revealed that AI is "unlocking greater efficiency and gains across our ads system ... [driving] roughly 5% more ad conversions on Instagram and 3% on Facebook." He went on to say that "AI is significantly improving our ability to show people content that they're going to find interesting and useful."
Meta's consistent user growth continues to fuel its success, as those who used one of Meta's family of social media platforms -- Facebook, Instagram, WhatsApp, or Threads -- increased 6% year over year to 3.48 billion, so its reach is unrivaled.
This captive audience forms the basis of the company's digital advertising success, making it part of a triumvirate in the space. Alphabet's Google controlled an estimated 26% of the U.S. digital advertising market in 2024, while Meta gained ground with 21%, and Amazon took 14%, according to data compiled by business intelligence platform eMarketer.
Meta's digital marketing is inseparable from its social media platforms, fueling its inexorable rise.
NASDAQ: META
Key Data Points
The AI wildcard
As the world's largest cloud infrastructure operators, Amazon Web Services (AWS), Microsoft Azure, and Google Cloud have a target market for their AI services, a luxury Meta doesn't have. To capitalize on the opportunity, the company tapped its treasure trove of data and trained a suite of homegrown, open-source, industry-favorite large language models (LLMs).
The group, dubbed LLaMA (large language model Meta AI), is available via all the major cloud platforms and powers the Meta AI chatbot. Meta isn't stopping there. The company has recently been on a hiring spree, reportedly spending billions of dollars to assemble the top talent in the field of AI to develop the first "personal superintelligence."
Meta has expanded beyond its social media roots into virtual reality (VR) and the metaverse, with AI being the company's latest area of interest. While Meta hasn't yet been able to significantly monetize these ambitions, Zuckerberg believes they hold the key to its future growth prospects and will eventually help boost profits.
The path to $3 trillion
Meta has a market cap of roughly $1.96 trillion (as of this writing), so it will take a stock price increase of roughly 53% to increase its value to $3 trillion. According to Wall Street, Meta is expected to generate revenue of $195 billion in 2025, giving the stock a forward price-to-sales (P/S) ratio of 10. Assuming its P/S remains constant, Meta would need revenue of roughly $299 billion annually to support a $3 trillion market cap.
Wall Street is currently forecasting growth for Meta of more than 12% annually over the coming five years. If the company attains that target, it could achieve a $3 trillion market cap as soon as 2029. For context, Meta has grown its annual revenue by 840% over the past decade and by 22% in the most recent quarter, and frequently surpassed Wall Street's growth expectations -- so those estimates are likely conservative.
Furthermore, at 30 times earnings, Meta's valuation is in line with that of the S&P 500 -- yet has generated stock price gains of 719% over the past 10 years, far exceeding the S&P 500, which rose just 203%. That makes a compelling case that Meta Platforms is an unqualified buy.
