One of the most remarkable changes in recent decades has been the rise of technology companies to become the most valuable companies in the world. Only two decades ago, industrial and energy companies General Electrics And ExxonMobil topped the list with market caps of $319 billion and $283 billion, respectively. Now, just 20 years later, technology dominates the list.

Three of the world’s best-known technology companies are at the forefront. Apple is currently at the top of the list with $3.4 trillion. Microsoft And NVIDIA are close behind with 3 trillion US dollars each.

With a market capitalization of only $1.3 trillion, it might be premature to say Meta-platforms (NASDAQ:META) is on track to join the $3 trillion club. However, the stock is up 163% over the past year and 495% over the past five years (at the time of writing) on ​​the back of strong operating results that should continue.

Meta has several clear advantages, and its ever-growing social media empire, market dominance, and strategic use of artificial intelligence could propel its membership in this elite fraternity.

A sustained and robust recovery

Although Meta Platforms struggled during the economic downturn, the stock has rebounded thanks to impressive financial results. In the second quarter, revenue rose 22% year over year to $39 billion, while diluted earnings per share (EPS) rose 73% to $5.16.

Financial results were driven by solid user numbers, with the number of people visiting one of Meta’s social media sites – which include Facebook, Instagram, Threads and WhatsApp – daily rising to 3.27 billion, up 7% year-on-year.

The robust results were also supported by the continued recovery of online marketing, which is improving thanks to the overall economic development. Meta’s social media ecosystem serves as a platform for the company’s digital advertising.

The online advertising market is dominated by the two leading players in the industry. In 2023 alphabetAccording to data from business intelligence platform Statista, Google controlled an estimated 39 percent of global digital advertising revenue, followed by Meta with 18 percent.

As the second-largest digital advertiser in the world, Meta Platforms is well positioned to benefit from what could be a significant recovery.

Multiple growth drivers

According to advertising research firm WARC Media, global ad spending is expected to grow 8% to over $1 trillion in 2024. Social media is expected to be the fastest-growing medium in digital advertising, accounting for nearly 22% of total ad spending, according to the report, adding that meta is “on track to see outsized gains in the coming months.”

The story continues

But beyond advertising, Meta’s strategy is to capitalize on the unexpected success of artificial intelligence (AI). The company is using the data it collects from billions of users of its social media platforms to develop its own cutting-edge large-scale language models, which form the basis of generative AI.

The result is Llama (Large Language Model Meta AI), which serves as the basis for the Meta AI chatbot. Earlier this year, the company unveiled Llama 3, calling Meta AI “one of the world’s leading AI assistants.” The company made this system available for free to individual users (and collected even more data in the process), while charging the largest cloud infrastructure providers for the privilege of including it in their offerings.

While there’s a lot of emphasis on AI, it’s not the only growth driver that could propel Meta upward. Meta’s Reality Labs – home of the Oculus virtual reality (VR) business, Quest VR headsets, and the ever-evolving Metaverse concept – have little to show for their efforts so far. But CEO Mark Zuckerberg is confident these investments will bear fruit and ultimately boost Meta’s profits.

With a recovering ad market, numerous growth drivers, and tailwinds for generative AI, it may not be long before Meta Platforms earns its membership in the $3 trillion club.

The road to $3 trillion

Meta currently has a market cap of around $1.35 trillion, meaning its stock price would need to increase by around 123% to push its value to $3 trillion. According to Wall Street, Meta is expected to generate revenue of $161.6 billion in 2024, which translates to a price-to-sales (P/S) ratio of around 8.3. Assuming the P/S remains constant, Meta would need to grow its revenue to around $360 billion per year to reach a market cap of $3 trillion.

Wall Street currently forecasts Meta revenue growth of 14% annually over the next five years. If the company hits that benchmark, could reach a market cap of $3 trillion as early as 2031. It’s worth noting that Meta has grown its annual revenue by nearly 1,000% over the past decade, so these expectations may well be conservative.

In addition, Meta is selling at a discount of 27 times earnings, compared to a multiple of 29 for the S&P500This is an attractive price for a company with a dominant market share, strong momentum and numerous opportunities for success.

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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool 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.

Meet the fast-growing stock that could join Apple, Microsoft and Nvidia in the $3 trillion club by 2031. Originally published by The Motley Fool