The $3 Trillion Club Has Just 3 Stocks: Which One Is Most Likely to Hit $4 Trillion First?

For almost 18 months, the broad S&P 500 index (SPX) has not seen a daily decline of more than 2%. Although there was an extended period of consolidation in the early 2000s leading up to the Great Recession, there has never been such a high level of market concentration.

The top 10 stocks currently make up 38% of SPX’s market capitalization. According to Bloomberg Intelligence, this sifting has led to a sharp cluster of stocks above their 200-day moving average, suggesting weak market breadth.

In other words, market consolidation and then concentration will likely reverse the trend seen in previous moves. This is made worse by the fact that only 19% of all US stocks are outperforming the index’s 20-year low.

At the same time, it is unclear whether there will be a sudden stop, given that the AAII sentiment survey shows a bullish outlook of 44.5%, above the historical average of 37.5%. It is clear that some companies have a greater concentration of human capital, patents and technology than others.

Which of these $3 trillion companies is most likely to cross the $4 trillion mark in the next few years, even after a potential market correction?

Nvidia (NASDAQ: NVDA) – $3.05 trillion market cap

While Super Micro Computer (NASDAQ: SMCI) outperformed Nvidia, up 207% versus 163% year-to-date, respectively, Nvidia has seen its fastest growth over the past 10 years, even outperforming Bitcoin (BTC). As such, Nvidia is the most likely candidate for a major price adjustment.

As a semiconductor company without factories, Nvidia relies heavily on Taiwan Semiconductor Manufacturing Company (NYES: TSM) to make its chip designs a reality. Geopolitical tensions between the U.S. and China have kept more capital from flowing into TSMC. At the same time, if the hot scenario were to come true, Nvidia and the rest of the market would be the first to fall.

By the same token, TSMC would divert capital inflows away from Nvidia if tensions subsided after the US presidential election. More importantly, it is a speculative thesis whether generative AI infrastructure will be needed at such a high level as NVDA’s 72.52 price-to-earnings (P/E) ratio suggests.

Namely, some studies suggest that the current approach to large language models (LLMs) has a plateau period where more GPUs will not deliver benefits. Finally, Nvidia’s rapid growth may have a boomerang effect. After locking in its stock profits, Nvidia saw an exodus of the most experienced talent that drove the company’s growth in the first place.

Microsoft (NASDAQ: MSFT) – $3.36 trillion market cap

Under Satya Nadella’s leadership, Microsoft has grown 1,085% since he became its third CEO in February 2014. All signs point to Microsoft ending up like IBM (NYSE: IBM ). Instead, with a wide moat that includes the Windows operating system, productivity suites, gaming, and Azure cloud computing, the company has a deep ecosystem that delivers recurring revenue.

Microsoft demonstrated this with free cash flow growth of 21% year over year to $21 billion, according to its FY24 Q3 conference results. Across businesses, Microsoft’s Azure continues to catch up with Amazon Web Services (AWS) with 31% revenue growth, followed by 62% revenue growth for Xbox content following the acquisition of Activision.

In turn, this superior network effect across all services is likely to increase with the integration of Copilot AI. This is exacerbated by Microsoft’s habit of strategic acquisitions, such as GitHub and LinkedIn, which deepens the moat even further.

More importantly, given the trend of merging corporate and government power, antitrust concerns are likely to take a backseat to utilitarianism. While it’s not as fast-growing a company as Nvidia, this makes Microsoft the most sustainable manufacturer in the coming years.

Apple (NASDAQ: AAPL) – market cap $3.28 trillion

Following somewhat subdued global demand, Apple’s iPhone sales rose 52% in the Chinese market in April. In the second quarter of 2024, iPhone sales accounted for 50.46% of total quarterly revenue of $90.75 billion, down from $92.84 billion in the same quarter a year earlier.

After the Vision Pro flop, the company clearly needs to change course from devices to more exciting services. But it’s no secret that Apple has been perceived as parched in the innovation department for years.

In May’s second quarter 2024 results, services sales were $23.8 billion compared to $20.9 billion in the same quarter last year. So far, Apple has been counting on record share repurchase programs to boost AAPL’s stock, but that may only increase shareholder loyalty to the point where other options are considered.

Apple’s market share is not only stagnant, but has fallen from 21% in Q1 2023 to 16% in Q1 2024. Despite share buybacks and Apple brand loyalty, reinforced by a deliberately isolated ecosystem, AAPL stock has barely caught up with the broader S&P 500, up 15.40% year-over-year.

But Apple’s successful AI integration could change that momentum, inviting new customers into experiences that would otherwise be unavailable. That will be a tall order given Microsoft’s stiff competition in the form of its latest Copilot+ initiative based on the Snapdragon X Elite and X Plus chips.

Do you think the presidential election will affect the stock market positively or negatively? Let us know in the comments below.

Disclaimer: The author does not own or have a position in any securities discussed in this article.

About the author

Tim Fries is the co-founder of The Tokenist. He holds a BS in Mechanical Engineering from the University of Michigan and an MBA from the University of Chicago Booth School of Business. Tim was a senior associate in the investment team at RW Baird’s U.S. Private Equity practice and is a co-founder of Protective Technologies Capital, an investment firm specializing in sensor, security and control solutions.