Change is perhaps the only certainty on Wall Street. Due to factors such as innovation, competition, mergers and acquisitions, bankruptcy and legal judgments, they include pieces of the puzzle Large publicly traded companies are constantly changing..
At the end of 2004, ExxonMobil It was the largest publicly traded company in S&P 500with Citigroup And General Electric Also in the top 10. Today, Microsoft(NASDAQ: MSFT ) At the end of 2004, it was the only member of the 10 largest publicly traded companies in the US.
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From the middle of 2023, we have seen Apple(NASDAQ: AAPL )Microsoft and Semiconductor Colossus Nivea(NASDAQ: NVDA ) All of them are worth more than $3 trillion. Although Nvidia seems the safest bet to reach the psychologically important $5 trillion mark. Artificial Intelligence (AI)the dark horse candidate may have the clearest path to becoming Wall Street’s first $5 trillion company.
On the one hand, there’s no denying that Nvidia loves textbook expansion. The company’s Hopper (H100) graphics processing units (GPUs) and successor Blackwell chips were the preferred options for businesses looking to run generative AI solutions and train large linguistic models in massive databases.
With so much demand for GPUs, Nvidia has been able to command $30,000 to $40,000 for a Hopper chip, up to four times as much. Advanced Micro Devices Instinct MI300X GPU charged customers. Gaining otherworldly pricing power helped boost Nvidia’s gross margin to 78.4 percent last year.
While the long-term outlook for AI remains encouraging and this technology has real-world applications in most industries around the world, NVIDIA’s chance to become Wall Street’s first $5 trillion company may be a historic setback.
About three decades ago, the Internet became mainstream and offered businesses a new way to connect with potential customers. Although the Internet eventually changed the direction of corporate America in a positive way, it took years before businesses really understood how to take advantage of these new sales and marketing channels.
Every game-changing technology or innovation for 30 years, including the Internet, has made its way through the early stage bubble. Simply put, investors consistently overestimate how quickly a new technology/innovation will be adopted or widely available. With most companies lacking a clear game plan for how to maximize returns on their AI investments, artificial intelligence is set to be the next in a long line of bubbles.
Since no company has benefited more directly from the AI revolution than Nvidia, the logical expectation is that the stock will be hit hard. Historical precedent makes it unlikely that Nvidia would have been valued at $5 trillion in the first place.
Image source: Amazon
If history sings and the AI bubble bursts, it would also be bad news for Microsoft, which has been investing heavily in the future of artificial intelligence. Although Microsoft’s operating cash flow is not as dependent on AI as NVIDIA’s, it will take a long time to be the first to reach the $5 trillion valuation.
The same can be said for Wall Street’s $3 trillion public company, Apple. Although Apple’s services division continues to grow at double-digit percentages, sales of physical devices, including the iPhone, have stagnated for two years. Apple stock is trading at one of its most expensive prices in a decade, leaving little room for its valuation to rise by another $1.4 trillion.
Part of the “Magnificent Seven” that seems to have the clearest path to a $5 trillion market cap is the e-commerce juggernaut. Amazon(NASDAQ: AMZN ).
When most consumers and investors hear the name Amazon, they think of the premier online marketplace. Last February, eMarketer estimated that Amazon would account for more than 40% of US online retail sales by 2024. Although the online retail platform has been Amazon’s face for nearly three decades, e-commerce plays a minor role in cash flow. Generation and operating income.
The lion’s share of Amazon’s growth potential (especially cash flow growth) comes from its affiliates, with Amazon Web Services (AWS) at the front of the pack.
According to data from tech-analysis firm Canalys, AWS is the world’s leading cloud infrastructure services platform, with an estimated share of 33% of total cloud spending by the third quarter of 2024. From Microsoft Azure and above AlphabetGoogle Cloud, Combined — and these are No. 2 and 3 in global cloud service costs.
While AI has played a role in the growth of AWS, enterprise spending on cloud services has been growing at a steady double-digit pace. Before AI was the hottest thing on Wall Street since sliced bread. While enterprise cloud service spending is still in its relatively early stages, Amazon can expect much higher margins from this segment to meaningfully grow its cash flow.
Beyond AWS, Amazon’s advertising services and subscription services (eg, Prime) segments are also growing at double digits, respectively. Amazon Push to Special Sports Events (Thursday night football and NBA streaming packages) should improve advertising demand and also support subscription pricing.
The bottom line is that, like Microsoft and Nvidia, Amazon can’t be dragged down by the many other catalysts bursting the AI bubble.
Finally, Amazon remains historically cheap. In the year In the 2010s, investors willingly bought the company’s stock at 23 to 37 times cash flow. But at the close on January 10, Amazon shares were valued at 13.5 times consensus cash flow for 2026. If Amazon achieves the median year-end multiple to cash flow that it has consistently traded at from 2010 to 2019, it will become Wall Street’s first $5 trillion company.
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Citigroup is an advertising partner of Motley Fool Money. Alphabet CEO Susan Frey is a member of The Motley Fool’s board of directors. John McKee, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of the Motley Fool’s board of directors. Shawn Williams It has locations in Alphabet and Amazon. He has a spot in the Motley Fool and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends GE Aerospace and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has Disclosure Policy.
