By Daniel Newman
As technology stocks have led the market for the better part of a dozen years, there are now 15 companies in the sector that have risen to mega-cap status — those valued at $200 billion or more.
Five are valued at more than $1 trillion, including electric-vehicle maker Tesla /zigman2/quotes/203558040/composite TSLA +7.82% , which I consider a tech company.
Bets have been placed on which companies will rise to a trillion next, with Meta Platforms — aka Facebook — at the top of most lists and Nvidia /zigman2/quotes/200467500/composite NVDA +1.15% sitting on top of mine as a call I made 14 months ago.
Perhaps harder than rising from north of half a trillion to a trillion is rising from less than $200 billion to break the threshold into mega-cap status.
However, a few companies look destined for this outcome precisely, and I believe three have an incredibly compelling case to get there within the next 12 to 18 months — if not sooner.
Read: These chip companies will benefit most as the industrial age segues to semiconductors
1. ServiceNow: ServiceNow /zigman2/quotes/202729495/composite NOW +2.37% has been on an incredible run for more than a decade. From 2010 to 2020, revenues grew at a 59.2% average annual rate, while its stock rose at 44% a year. The company finished the 2020 calendar year at about $4.5 billion in revenue, and its trailing 12 months have surged close to $5.5 billion.
The company now has more than 1,266 customers with a million or more dollars in recurring revenue, and is seeing this number grow at a substantial rate, including 25% in its most recent quarter.
Beyond the numbers, the company’s technology, which enables companies to automate and implement digital workflows, continues to prove robust and best of breed. The most recent release of its Rome platform, three additional acquisitions to expand its portfolio and a deepened partnership with Microsoft /zigman2/quotes/207732364/composite MSFT +0.57% are just a few recent highlights that provide the company a pathway to growth that should accelerate based on trends including app modernization, hybrid work, workflow automation, and even enterprise ESG initiatives.
It’s hard to see ServiceNow not providing the robust growth that will take its market cap above $200 billion. The company’s market value is about $138 billion as of Monday.
2. Qualcomm: Qualcomm’s QCOM strong earnings report released last week — earnings per share jumped 76% year over year and revenue rose 43% — helped drive the stock to over $160 from the low $120s in mid-October.
Consequently, that took the company’s market cap from about $145 billion to over $180 billion in just a matter of days. It serves as a timely reminder of how quickly a tech company in the right markets can produce momentum.
Qualcomm, while best known as a chip provider for mobile handsets, is rapidly becoming a much bigger force in many categories, including the internet of things (IoT), automotive and wireless RFFE. With IoT and wireless RFFE surpassing a billion dollars a quarter in revenue, and automotive reaching nearly a billion in annual revenue with a $10 billion design pipeline, the company is becoming increasingly diversified. Thirty-eight percent of revenue in its QCT semiconductor business is now unrelated to handsets.
Perhaps these adjacent business successes alone could catapult the company’s market value to over $200 billion, but what Qualcomm also has going for it is an undisputable global market leadership in 5G, which will continue to accelerate its handset business, as well as all of its adjacencies and massive licensing business.
3. AMD: I’ve been critical at times of Advanced Micro Devices /zigman2/quotes/208144392/composite AMD -0.91% , and sometimes you have to lean into calls you get wrong. While Intel /zigman2/quotes/203649727/composite INTC -2.40% under new CEO Pat Gelsinger shows more ambition and clear direction, AMD under Lisa Su has been on an absolute tear.
In August, Mercury Research reported that AMD’s 22.5% x86 market share was its best in 14 years. With 4.2% year-over-year market share growth in its second quarter and another 54% overall revenue growth in the third quarter, the company’s market share gains look likely to continue.
While I do think Intel is quickly patching its gaps and going to be a much more robust competitor, I believe the overall demand for CPUs (central processing units), GPUs (graphics processing units) and FPGAs (field-programmable gate arrays) will drive a larger total addressable market, and AMD’s going to grow revenues even if market share gains level off.
Speaking of FPGA’s, the impending Xilinx deal, which I believe will gain regulatory approval, hasn’t been accounted for by many investors.
AMD’s market value rose to over $180 billion Monday after the stock surged more than 10%. The company on Monday announced a range of news , including the fact that Meta will use its Epyc processors in its data center computers.
After those three, I would add Micron Technology /zigman2/quotes/205710729/composite MU +1.72% as an honorable mention. The company sits at closer to $85 billion in market cap. Still, as our thirst for compute continues to grow, the need for memory technology will scale dramatically, making Micron a significant beneficiary along with the likes of Samsung, which already sits well inside mega-cap territory.
Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advising, and/or consulting to Microsoft, Zoom, Salesforce, AWS and dozens of other companies in the tech and digital industries. Neither he nor his firm holds any equity positions with any companies cited. Follow him on Twitter @danielnewmanUV.