Change may be the only certainty on Wall Street. Due to factors such as innovation, competition, mergers and acquisitions, bankruptcies, and legal rulings, the puzzle pieces that make up the the largest publicly traded companies are constantly changing.
When 2004 ended, ExxonMobil was the largest publicly traded company in the S&P 500with Citigroup a General Electricity also in the top 10. today, Microsoft(NASDAQ: MSFT) is the only member of the late 2004 top 10 that is still among America's largest publicly traded companies.
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Since the midpoint of 2023, we have witnessed Apple(NASDAQ: AAPL)Microsoft, and semiconductor colossus Nvidia(NASDAQ: NVDA) all exceed the $3 trillion valuation plateau. Although Nvidia would appear to be the surest bet to reach the psychologically important $5 trillion level given the rise artificial intelligence (AI)may be a dark horse candidate with the clearest path to becoming Wall Street's first $5 trillion company.
On the one hand, there's no denying that Nvidia has enjoyed textbook implementation expansion. The company's Hopper (H100) graphics processing units (GPUs) and subsequent Blackwell chips have been the preferred options for businesses looking to run productive AI solutions and train large language models in their high-computing data centers.
With demand for GPUs overwhelming, Nvidia has been able to command $30,000 to $40,000 for its Hopper chip, which is up to four times as much Advanced Micro Devices has charged customers for its Instinct MI300X GPU. Having otherworldly pricing power helped push Nvidia's gross margin to as high as 78.4% last year.
Although the long-term outlook for AI remains encouraging and this technology has real-world applications in most industries around the world, Nvidia's chances of becoming Wall Street's first $5 trillion company are likely to have blocked by history.
About three decades ago, the internet started to go mainstream and offered a new way for businesses to connect with potential customers. Although the internet ultimately changed the growth path for corporate America in a positive way, it took years for businesses to fully understand how to harness these new sales and marketing channels.
Including the internet, every game-changing technology or innovation of the past 30 years has navigated its way through an early-stage bubble. Put simply, investors have consistently overestimated how quickly a new technology/innovation would be adopted or gain widespread use. With most companies without clear game plans for how they will maximize the return on their AI investments, it sets up artificial intelligence 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 its stock would be hit the hardest. Historical precedent makes it unlikely that Nvidia will soar to a $5 trillion valuation first.
Image source: Amazon.
If history rhymes and the AI bubble bursts, it would also be bad news for Microsoft, which has been investing heavily in a future driven by artificial intelligence. While Microsoft's operating cash flow is not as dependent on AI as Nvidia, being the first to reach a $5 trillion valuation would be quite a feat.
The same can be said for another $3 trillion Wall Street public company, Apple. Although Apple's Services segment continues to grow by a double-digit percentage, its sales of physical devices, including the iPhone, have stagnated for two years. Apple stock is already trading at one of its most expensive valuations in a decade, which leaves little room for its valuation to rise another $1.4 trillion.
The “Magnificent Seven” component that seems to have the clearest path to a $5 trillion market cap is an e-commerce juggernaut Amazon(NASDAQ: AMZN).
When most consumers and investors hear the name Amazon, they think of its most prominent online marketplace. Last February, eMarketer estimated that Amazon would account for just over 40% of US online retail sales in 2024. Although this online retail platform has been the face of Amazon for nearly three decades, it -trade plays a very small role in terms of cash flow. production and operating income.
The lion's share of Amazon's growth potential (specifically cash flow growth) comes from its supporting operating segments, with Amazon Web Services (AWS) leading the pack.
Based on data from technology-analytics company Canalys, AWS is the world's leading cloud infrastructure service platform, with an estimated share of 33% of total cloud spending during the third quarter of 2024. For context, Amazon's share of spending among cloud service providers is more than Microsoft's Azure and Alphabet's Google Cloud, combined — and are Nos. 2 and 3 in global spending on cloud services.
While AI played a role in the growth of AWS, enterprise spending on cloud services was growing at a steady double-digit pace long before AI became the hottest thing since breaking bread on Wall Street. With enterprise cloud service spending still in its relatively early stages of expansion, Amazon can expect significantly higher profits from this segment to meaningfully boost its cash flow.
Beyond AWS, Amazon's advertising services and subscription services segments (eg, Prime) are also respectively growing by double digits. Amazon's push into exclusive sporting events (Thursday Night Football and NBA streaming packages) improve advertising demand, as well as support its subscription pricing power.
The key point is that unlike Microsoft and Nvidia, Amazon would not be dragged down by the AI bubble bursting thanks to its abundance of other catalysts.
Finally, Amazon remains historically cheap. Throughout the 2010s, investors were willing to pay 23 to 37 times year-end cash flow to own the company's shares. But as of the closing bell on January 10, Amazon shares are valued at just 13.5 times consensus cash flow for 2026. If Amazon reached the median year-end multiple to cash flow it would trade flat from 2010 to 2019, it would become Wall Street's first $5 trillion company.
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Citigroup is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, 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 he has jobs 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: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
