A dark horse candidate may have the clearest path to becoming Wall Street’s most valuable publicly traded company.
Perhaps the only certainty on Wall Street is change. The pieces of the puzzle that make up the largest publicly traded companies are constantly in flux due to factors such as innovation, competition, mergers and acquisitions, bankruptcies, and legal rulings.
As 2004 came to a close, ExxonMobil was the largest publicly traded company in the S&P 500, with Citigroup and General Electric also in the top 10. Currently, Microsoft (MSFT -0.36%) is the only company in the top 10 at the end of 2004 that remains among the largest publicly traded companies in the United States.
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Since mid-2023, we have been witnessing Apple. (AAPL -0.48%)Microsoft, semiconductor giant Nvidia (NVDA -1.10%) All are above the $3 trillion valuation plateau. Given the rise of artificial intelligence (AI), Nvidia looks like the surest bet to reach the psychologically important $5 trillion mark, but a dark horse candidate could become Wall Street’s first $5 trillion company may have the clearest path for.
Nvidia is fighting history and boasts a perfect track record
On the other hand, there’s no denying that Nvidia has enjoyed textbook expansion. The company’s Hopper (H100) graphics processing unit (GPU) and its successor Blackwell chips have become the preferred choice for companies looking to run generative AI solutions and train language models at scale in high-computing data centers. .
With demand for GPUs overwhelming supply, Nvidia was able to price its Hopper chips between $30,000 and $40,000. That’s up to four times more than Advanced Micro Devices charges customers for the Instinct MI300X GPU. Thanks to its out-of-this-world pricing power, Nvidia’s gross profit margin rose to 78.4% last year.
The long-term outlook for AI remains promising, and the technology has real-world applications in most industries around the world, but history may hinder Nvidia’s chances of becoming Wall Street’s first $5 trillion company is high.
About 30 years ago, the Internet began to go mainstream, offering businesses new ways to connect with potential customers. Although the Internet ultimately positively changed the growth trajectory of American businesses, it took years for businesses to really understand how to take advantage of these new sales and marketing channels.
All breakthrough technologies and innovations over the past 30 years, including the Internet, have survived their initial bubbles. More simply, investors have consistently overestimated how quickly new technologies and innovations will become adopted and widely used. Artificial intelligence is establishing itself as the next in a long bubble, as most companies lack a clear strategy to maximize returns from their AI investments.
No company has benefited more directly from the AI revolution than Nvidia, so it’s no surprise that its stock would take the biggest hit. Based on historical precedent, it’s unlikely that Nvidia’s valuation will reach $5 trillion in the first place.
Image source: Amazon.
This dark horse candidate has a clear path to becoming America’s largest publicly traded company.
If history holds its own and the AI bubble bursts, it would also be bad news for Microsoft, which has invested heavily in an artificial intelligence-driven future. Microsoft’s operating cash flow is not as overwhelmingly dependent on AI as Nvidia’s, but it would be a stretch to reach a $5 trillion valuation for the first time.
The same goes for Apple, Wall Street’s other $3 trillion public company. Apple’s services division continues to see double-digit growth, but sales of physical devices, including iPhones, have been stagnant for two years. Apple stock is already trading at its highest valuation in a decade, with little room for the valuation to rise another $1.4 trillion.
The component of the Magnificent Seven that appears to have the clearest path to a $5 trillion market cap is e-commerce giant Amazon. (AMZN -0.32%).
When most consumers and investors hear the name Amazon, they think of its dominant online marketplace. Last February, eMarketer estimated that Amazon would account for just over 40% of U.S. online retail sales in 2024. Although the online retail platform has been the face of Amazon for nearly 30 years, e-commerce has played a minimal role from a cash flow perspective. Sales and operating profit.
Most of Amazon’s growth potential (especially cash flow growth) comes from its ancillary business segments, led by Amazon Web Services (AWS).
Based on data from technology analysis firm Canalys, AWS is the world’s leading cloud infrastructure services platform and is estimated to account for 33% of total cloud spending in the third quarter of 2024. For context, Amazon’s share of spending among cloud service providers is as follows: That’s more than Microsoft’s Azure and Alphabet’s Google Cloud combined, which are the second and third largest spenders on cloud services worldwide.
While AI has played a role in AWS’s growth, long before AI became the hottest thing on Wall Street since sliced bread, enterprise spending on cloud services was at a steady double-digit pace. It was increasing. Since spending on enterprise cloud services is still in a relatively early stage of expansion, Amazon can expect to see significantly higher margins and significantly higher cash flow from this segment.
Beyond AWS, Amazon’s advertising services and subscription services (such as Prime) segments are also each experiencing double-digit growth. Amazon’s focus on exclusive sporting events (Thursday Night Football and NBA streaming packages) should not only improve advertising demand, but also support subscription pricing power.
Importantly, unlike Microsoft and Nvidia, Amazon won’t be dragged along by the bursting of the AI bubble thanks to a wealth of other catalysts.
Finally, Amazon remains historically cheap. Throughout the 2010s, investors were willing to pay between 23 and 37 times year-end cash flow to own the company’s stock. However, as of the closing bell on January 10th, Amazon stock was valued at just 13.5 times consensus 2026 cash flow. If Amazon were to reach the median year-end multiple of cash flow it consistently traded on from 2010 to 2019, it would become Wall Street’s first $5 trillion company.
Citigroup is an advertising partner of Motley Fool Money. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Sean Williams has held positions at Alphabet and Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends GE Aerospace and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
