In the wake of the worst stock market performance in more than a decade, technology stocks have come roaring back, with the Nasdaq Composite up 35% so far this year. This rebound has added new members to the exclusive group of U.S. companies with a market cap worth more than $1 trillion. Here are the members of this auspicious group and their market caps, as of the market close on Wednesday:
- Apple: $3 trillion
- Microsoft: $2.5 trillion
- Alphabet: $1.6 trillion
- Amazon: $1.3 trillion
- Nvidia: $1.1 trillion
One company that seems destined to rejoin this exclusive group is Meta Platforms (META -1.90%). The social media maven originally joined their ranks in mid-2021, only to lose its footing, punished by the economic downturn that followed. Meta stock has since rebounded, up 35% so far this year. With a market cap of $798 billion, Meta's value would need to increase by roughly 25% from Thursday's market close to rejoin this rarefied group.
Let's look at the factors that will likely push Meta Platforms to new heights.
Image source: Getty Images.
A robust recovery in the making
Evidence suggests Meta's stock price has much further to run. In the second quarter, Meta returned to double-digit growth -- on both the top and bottom line -- for the first time since late 2021. Revenue of $32 billion climbed 11% year over year, while diluted earnings per share (EPS) of $2.98 jumped 21%.
The financial results were fueled by solid user metrics. Facebook reported daily active users (DAUs) of more than 2 billion, up 5% year over year. More than 3 billion visited the platform each month, an increase of 3%.
The results were even more impressive across Meta's family of apps, which includes Facebook, Instagram, Messenger, and WhatsApp. In aggregate, the apps attracted more than 3 billion DAUs, which rose 7%, with 3.9 billion monthly visitors, an increase of 6%.
Perhaps more telling was Meta's forecast, which called for 20% growth at the midpoint of its guidance. This would represent its highest revenue growth rate in about two years.
There's also a fair amount of potential upside with the recent debut of Threads, which launched on July 5 -- after the close of the quarter -- which competes directly with X (formerly Twitter). CEO Mark Zuckerberg previously announced that Threads had surpassed 100 million users just five days after launch.
It remains to be seen if the initial influx of users will stick around and if Meta can build on that early success. The big test will be if the company can monetize its latest social media app. Still, the opportunity is there, and history is on Meta's side.
A duopoly in digital advertising
Social media is the fuel that drives Meta's digital advertising machine, and the company has few real competitors.
Internet advertising is a market dominated by the industry's top two players. Alphabet's Google controls an estimated 42% of the market, followed by Meta with 23%, according to data compiled by investment research provider Visible Alpha.
It's well documented that marketers cut back on ad spending amid economic uncertainty, which has hamstrung the industry for much of the past two years. However, things appear to be on the upswing. In the second quarter, Meta reported ad revenue that grew 11% year over year, while Google's increased 3%.
While that might not seem like anything to write home about, consider this: It's the first time both companies have reported year-over-year growth -- at the same time -- since 2021, which suggests the advertising rebound is well and truly underway.
Multiple growth drivers
Digital ad spending worldwide is expected to grow roughly 10% to $602 billion this year, eventually climbing to $870 billion by 2027, an increase of 58% compared to 2022 levels, according to data compiled by eMarketer. As one of the key players in the adtech industry, Meta is well positioned to ride this secular growth trend.
There's also Meta's significant spending on the metaverse via its Reality Labs segment. This amounted to $13.7 billion last year and $10.1 billion in 2021. While those investments have yet to pay off, Meta controlled an industry-leading 80% of the virtual reality headset market in the first quarter, according to market intelligence firm IDC. If virtual reality takes off, Meta Platforms is in the pole position.
Finally, Meta's launch of Threads could also generate additional ad revenue, though we don't yet know how that will play out.
Given the multiple drivers, rebounding ad market, and strong secular tailwinds, it shouldn't be long before Meta Platforms regains its membership in the $1 trillion club.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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