Unstoppable stocks that could join Apple, NVIDIA, Microsoft, Alphabet, Amazon, Meta, and Taiwan Semiconductor Manufacturing in the $1 trillion club by 2035

One of the biggest long-term tailwinds in recent years has been the emergence of artificial intelligence (AI). The latest advances in AI went viral early last year, and the Trillion Dollar Club’s list of companies includes many companies at the forefront of this next-generation technology.

For example, Apple products, including Siri and Maps, have always employed AI, while Microsoft, Alphabet, Amazon, and Meta Platforms have built seemingly impenetrable moats by deeply integrating AI into their respective business operations. I did. Nvidia and Taiwan Semiconductor Manufacturing have developed chips that enable AI.

Netflix (NFLX 11.09%) is one of the pioneers in AI, using cutting-edge algorithms to inform streaming recommendations and production choices, but some people are busy keeping up with the latest shiny new thing. It is not popular from. Investors may be surprised to learn that Netflix posted another quarter of double-digit growth. With a market cap of just $324 billion, it may seem premature to suggest that Netflix will join its peers in the $1 trillion club, but the stock has appreciated more than 100% in the past year and in the past 10 years. It’s up more than 1,380%. And the evidence suggests that the rise will continue.

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bullish outcome

Netflix just reported its third quarter results, which beat expectations in every important metric. Revenues increased 15% year-over-year to $9.83 billion, and earnings per share (EPS) increased 45% to $5.40, resulting in solid earnings growth. Revenue was driven by strong growth in paid subscribers, up 14% to more than 5 million subscribers. The bottom line further increased due to operating margin expansion, increasing by 720 basis points to 29.6%.

For context, Netflix outperformed across the board, with analysts’ consensus estimates calling for revenue of $9.77 billion, EPS of $5.12, and subscriber growth of 4.5 million.

Perhaps more importantly, management expects the growth streak to continue. Netflix expects fourth-quarter revenue of $10.1 billion, an increase of nearly 15%, and EPS more than doubling to $4.23.

Gradual levers for growth

In a conference call to discuss the results, Netflix laid out plans to continue its impressive growth and highlighted three particularly important opportunities.

Netflix has been dabbling in video games for a while now, but it’s starting to see more interest from viewers for games based on the company’s growing library of intellectual property. Management is particularly excited about titles based on the company’s most-watched series, Squid Games.

Management is also excited about its recent success with live events. Netflix is ​​live streaming the boxing match between Mike Tyson and Jake Paul on November 15th. The company also hosted two NFL games on Christmas, Super Bowl LII-winning Kansas City Chiefs vs. Pittsburgh Steelers and Baltimore Ravens vs. Houston Texans. Finally, Netflix will be the new home of WWE Raw, the top-rated wrestling entertainment show, with weekly episodes beginning in January 2025.

However, the biggest opportunity for the company lies in the growth of its digital advertising business. Netflix noted during the conference call that its audience and ad inventory are currently growing faster than the company’s ability to capitalize on that growth. Members signing up for our lowest-priced inventory increased 35% sequentially and accounted for 50% of new members in countries where Netflix shows ads.

The company has several significant initiatives aimed at accelerating its advertising business. First, Netflix will launch its first-party ad server in Canada this quarter, and in the remaining ad markets in 2025. The company is also partnering with The Trade Desk to expand its advertising reach. Netflix noted that members in the advertising tier are similar to other subscribers in terms of viewing time and preferred titles, indicating consistent viewing patterns. Management expects advertising revenue to double (on a small scale basis) in 2025.

Each of these initiatives represents incremental growth drivers and helps demonstrate how Netflix plans to continue its strong growth.

The road to $1 trillion

Netflix currently has a market capitalization of $323 billion, and while it would require a roughly 207% share price increase to reach $1 trillion, the company has a clear path to growth over the next 10 years. According to Wall Street, Netflix is ​​expected to generate $38.74 billion in revenue in 2024, with a forward price-to-earnings (P/S) ratio of approximately 8x. Assuming P/S remains constant, Netflix will need to grow its revenue. Annual revenues of approximately $357 billion support a $1 trillion market capitalization.

Wall Street currently projects Netflix’s revenue growth to be about 26% annually over the next five years. If the company hits that benchmark, it could reach a market cap of $1 trillion as early as 2035. Notably, Netflix has increased its annual revenue by 562% over the past decade and its net income has soared by 1,450%, so Wall Street’s outlook could very well be conservative. Additionally, as this quarter has shown, Netflix tends to outperform Wall Street expectations, potentially cutting years off this schedule.

Finally, Netflix currently sells for around 39x P/E, which may seem expensive at first glance, but consider the following: Wall Street expects Netflix to generate EPS of $23.11 in 2025. This equates to a multiple of 30, which is the same as the S&P. 500. Considering Netflix’s strong growth track record and its significant opportunity, we think this is a reasonable price to pay for a company expected to consistently experience double-digit growth over the next five years.