This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Only a handful of companies have reached the trillion dollars in value mark, but that number will likely grow in coming years. As I set out to find companies that could reach a trillion-dollar valuation, I had a few requirements. The companies must have an extremely large addressable market, must have an identifiable moat to build on, and be growing and profitable today.
The three stocks that stood out to me are Taiwan Semiconductor (NYSE: TSM), Disney (NYSE: DIS), and Adobe (NASDAQ: ADBE).
Taiwan Semiconductor Manufacturing
There's one chip manufacturer that's more important than any other in the world today, and that's Taiwan Semiconductor Manufacturing. The company is a third-party manufacturer for chip leaders like Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), and dozens of other companies designing their own chips.
Designing a great chip is great, but someone has to make the chip, and that's where Taiwan Semiconductor comes in.
You can see in the chart below that the company is now trading at just 13.2 times earnings, and has grown revenue and net income by 91.5% and 140.4% respectively in the last three years.
TSM Market Cap data by YCharts
What's fascinating about the company's place in chip manufacturing is that there's no clear competitor at the bleeding edge of manufacturing. Intel (NASDAQ: INTC) is years behind, GlobalFoundries (NASDAQ: GFS) is much smaller, and AMD (NASDAQ: AMD) has a more integrated business model. For chip companies that don't own fabrication facilities, Taiwan Semiconductor is still the go-to manufacturer if you're designing at the cutting edge.
Given the company's strong strategic position, technology, growth, and profitability, I think this could be the first of these companies to reach $1 trillion in value.
Disney
The last five years haven't been quite as smooth sailing at Disney. The company has seen cable connections decline, streaming has been an enormous investment, and the pandemic had a huge effect on both theaters and theme parks. But Disney is positioned for a decade of growth.
DIS Market Cap data by YCharts
Disney now technically has more subscribers than Netflix (NASDAQ: NFLX) when you add together Disney+, ESPN+, and Hulu. So, it's a leader in next-generation media distribution.
Investors haven't liked the money being spent on streaming, but the payoff may be getting better very soon. Disney announced an advertising tier, but instead of offering a lower-cost version of Disney+ with ads, it is keeping the same $8 per month price but adding advertising, increasing the price to $11 per month if you want no ads.
Disney's ability to create compelling content and then monetize it through what I call a waterfall of businesses -- from the theater to streaming to merchandise to theme parks -- is unmatched in media. The company needs to do well to reach a $1 trillion valuation by 2030, but I think it can get there.
Adobe
Adobe has long made valuable software for designers, but it's now poised to become the operating system of the design and programming community if it can complete the acquisition of Figma.
You can see below that Adobe's business of licensing software to creators has been a growth machine over the last decade. But it's creating tools that people use to create assets, not a platform they're using to collaborate on. That's why the acquisition of Figma is a big deal.
ADBE Revenue (TTM) data by YCharts
You can see above that Adobe currently trades for 28.5 times trailing earnings, and Figma should help with future growth. But for Adobe to become a $1 trillion company, it needs to lean into Figma's multi-user platform to become a real juggernaut. I think it can do that, pulling not only graphic designers but programmers, project managers, and many more into the Figma ecosystem. Don't be surprised if products like Photoshop and Illustrator become add-ons to Figma, not the other way around.
Now that Adobe has a potential platform solution, the sky is the limit for the company's value. That's why I think this could be a $1 trillion company by the end of the decade.
Thinking big
There's no guarantee any of these companies will reach the heights of a $1 trillion company, but they all have the foundation needed to get there. If management thinks big, these stocks could be trading near the most valuable companies in the world.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
