From their current market capitalizations today, Visa (NYSE: V), ASML (NASDAQ: ASML), and Adobe (NASDAQ: ADBE) would require annualized returns of 8%, 15%, and 19%, respectively, over the next decade to reach the $1 trillion threshold.
While these percentages may not sound too far-fetched, investors may be wary of these massive companies' ability to deliver strong growth for another 10 years. However, these businesses are uniquely advantaged to reach this goal through their dominant leadership positions.
Let's explore why these three stocks could be the best bets to hit this lofty goal within the next decade or sooner.
Needing to boost its market capitalization by roughly 107% to reach the $1 trillion mark, Visa and its massive payment processing network may be as close to a good bet as there is to reach this goal. While still amounting to over $520 billion of valuation creation needed, this increase seems feasible, considering Visa's market capitalization more than quadrupled over the last decade.
Furthermore, requiring an 8% annualized return over the next decade to meet this mark, the company's recent growth rates show that this should be well within reach.
Averaging 11% and 17% annualized sales and free cash flow (FCF) growth over the last five years, Visa's de facto positioning as part of a duopoly with Mastercard continues to drive incredible compounding results.
But why should investors expect this growth to continue for the next decade?
First, the company recently announced its Visa+ service, which aims to simplify the peer-to-peer (P2P) payment space. With the number of payment apps, digital wallets, and other "super banking apps" proliferating, Visa wants to ensure consumers can use all these services interoperably. For example, consider that PayPal and Venmo -- the latter owned by the former -- have not enabled P2P payments with each other yet, and it is clear that an offering like Visa+ could play a beneficial role in this space.
Additionally, the company's 24% growth in cross-border volume and 20% growth in value-added services in the second quarter of 2023 highlight that its core growth engines are still firing on all cylinders.
Best yet for investors, not only is Visa an excellent bet to reach $1 trillion by 2033, but it has a tremendous track record of returning significant amounts of excess cash to its shareholders. Sporting dividend payments that have quintupled over the last decade -- while shares outstanding declined 19% simultaneously -- Visa's price-to-free cash flow (P/FCF) ratio of 27 is a fair price for one of the world's highest-quality stocks.
Maintaining what amounts to a monopoly in extreme ultraviolet lithography, ASML's dominance in the semiconductor-making equipment market makes it a great contender to be the newest $1 trillion stock. Currently boasting a market cap of around $245 billion, ASML needs a 15% annualized growth to reach a 13-figure valuation by 2023.
While this is an ambitious growth rate, the company has managed 21% sales growth annually over the last five years -- capped by a 13% increase in its most recent quarter. What makes this 13% gain impressive is that it occurred in the face of a very weak consumer end market, which has many of ASML's semiconductor companies running off excess inventory.
Making this growth all the more remarkable is the Netherlands' (ASML's home country) ongoing semiconductor technology export restrictions with China. However, while China has fallen from 15% of ASML's sales in Q3 2022 to 8% in the most recent quarter, the United States has grown from 5% to 15% of sales across the same period.
With the semiconductor industry expected to at least double over the next decade and countries mulling the importance of their technological sovereignty, ASML should continue seeing its market cap balloon. Best yet for investors, the company pays investors a well-funded, growing 1.3% dividend yield while they wait.
Combining two of the world's most powerful forces -- creativity and artificial intelligence (AI) -- Adobe's creativity cloud has made it a market leader in its niche. As the longest shot of these three companies to reach $1 trillion, Adobe needs to post incredible 19% annualized market cap growth over the next decade to reach this goal.
However, led by promising ideas such as its generative AI technology for video and content creation or its AI-aided podcast recording and editing, the company is plunging headfirst into the myriad of uses available from today's most popular buzzword.
For example, highlighting Adobe's video editing and collaboration's ongoing success, two recent Oscar-winning films, Everything Everywhere All at Once and Navalny, were edited with the company's products. On top of this, the company received a technical Oscar for its 3D capabilities used to make some of today's most popular animation-dense films.
As promising as Adobe's potential to build upon its AI-focused creativity is, its nascent digital experiences segment could be the wild card that carries the company to the trillion-dollar mark.
Growing sales by 14% despite a weak consumer economy, Adobe's experience platform -- perhaps more importantly -- saw its client list grow by more than 50% year over year. Named a leader in the digital experience platform industry by Gartner and its Magic Quadrant research report in 2023, the quickly developing unit could take off as the consumer-facing portion of the economy recovers over time.
Recently landing prominent names like Accenture, Costco, IBM, Carnival, and Pfizer as clients, this fledgling unit offers strong growth optionality for investors and ties in beautifully with the rest of Adobe's operations.
Currently trading with a P/FCF of 23 -- its cheapest valuation in almost 10 years -- Adobe's reasonable price and leadership positioning in creativity and generative AI make it an attractive pick for investors looking for the next $1 trillion stock.
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Josh Kohn-Lindquist has positions in ASML, Accenture Plc, Adobe, Costco Wholesale, Mastercard, PayPal, and Visa. The Motley Fool has positions in and recommends ASML, Accenture Plc, Adobe, Costco Wholesale, Mastercard, PayPal, Pfizer, and Visa. The Motley Fool recommends Carnival Corp. and Gartner and recommends the following options: long January 2024 $420 calls on Adobe, long January 2025 $290 calls on Accenture Plc, long January 2025 $370 calls on Mastercard, short January 2024 $430 calls on Adobe, short January 2025 $310 calls on Accenture Plc, short January 2025 $380 calls on Mastercard, and short June 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.