Advertising giant Alphabet (GOOG 0.02%) (GOOGL 0.14%) is among the largest companies in the world. Its market capitalization temporarily dropped below $2 trillion (it's at $1.97 trillion) on Monday as the broader market had a rough day. Still, it remains fourth on the list of companies by market cap and recent market movements suggest it could get back up above $2 trillion soon. Alphabet reached this position thanks to its impressive share of the global digital advertising market, especially because of the popularity of its Google Search engine.
However, Alphabet is not the only bigwig in the global digital ad space. Together, Meta Platforms (META 1.86%) and Alphabet controlled roughly half of the $300 billion in global digital ad spending last year.
Not surprisingly, Meta Platforms is another tech giant that is among the world's most valuable companies, with a market cap of $1.25 trillion. This puts it seventh on the list of companies by market cap globally. However, it won't be surprising to see Meta Platforms eventually join Alphabet in the $2 trillion market cap club.
Let's see why Meta Platforms could become a $2 trillion company in the future and also check how much time it may take to get there.
Meta Platforms is reaping the benefits of growing AI adoption in advertising
Meta Platforms released its Q2 2024 results on July 31, reporting a 22% year-over-year increase in revenue to $39 billion. The company's adjusted earnings, meanwhile, shot up 73% year over year to $5.16 per share. Both numbers were better than analysts' expectations of $38.2 billion in revenue and earnings of $4.72 per share.
Meta got $38.3 billion in revenue from the advertising business last quarter. It is worth noting that its top line increased at a faster pace than Alphabet's Google Advertising revenue, which increased just 11% year over year to $64.6 billion in the previous quarter. It looks like artificial intelligence (AI) is playing a key role in helping Meta's ad business grow at a faster pace than rivals.
On the company's recent earnings conference call, CFO Susan Li pointed out:
We're also making it easier for advertisers to maximize ad performance and automate more of their campaign set up with our Advantage+ suite of solutions. We're seeing these tools continue to unlock performance gains, with a study conducted this year demonstrating 22% higher return on ad spend for U.S. advertisers after they adopted Advantage+ Shopping campaigns.
Investors should note that the company's Advantage+ solutions are powered by AI to help advertisers increase their returns on ad spending, and Li's comments indicate that this platform is helping them do just that. More importantly, Meta plans to add more AI features to its ad tools to make it easier for advertisers to create and optimize ad campaigns.
Meanwhile, Meta is also looking to capitalize on the growing demand for generative AI assistants. The company believes that Meta AI, which is its generative AI assistant, could become "the most used AI assistant by the end of the year." That won't be surprising as the company has rolled out its assistant on popular apps such as WhatsApp, Instagram, Facebook, and Messenger.
The number of daily active people across its family of apps stood at 3.27 billion in June, which explains why Meta is confident of its AI assistant gaining widespread adoption this year. Precedence Research estimates that the market for intelligent virtual assistants could be worth $179 billion in 2034 as compared to $16 billion last year, driven by improving adoption in areas like healthcare and customer service.
Meanwhile, digital ad spending is forecast to jump from $550 billion last year to $1.37 trillion in 2033. Meta Platforms, therefore, has a couple of solid catalysts that could help it sustain its impressive growth in the long run. This also explains why analysts have raised their growth expectations of late.
META Revenue Estimates for Current Fiscal Year data by YCharts
Healthy earnings growth could make a $2 trillion market cap a reality
We saw that Meta Platforms currently has a market cap of $1.25 trillion, which means that it is 60% away from hitting the $2 trillion mark. There is a good chance that the company could join Alphabet in the $2 trillion club within the next three years thanks to the robust earnings growth that it is expected to clock.
The following chart shows that analysts have increased their earnings expectations from Meta for 2024, 2025, and 2026.
META EPS Estimates for Current Fiscal Year data by YCharts
Assuming the company hits $27.53 per share in earnings in 2026 and trades at 25 times forward earnings at that time (identical to its current forward price-to-earnings ratio), its stock price could hit $688. That would be a 41% increase from current levels. However, Meta's forward earnings multiple is lower than the Nasdaq-100 index's earnings multiple of 31, suggesting that it is undervalued right now.
If Meta's solid growth is rewarded by a richer valuation and it trades at 31 times earnings after three years, its stock price could jump to $853 (based on the 2026 earnings estimate of $27.53 per share). That would be a 75% increase from current levels and would be enough to send Meta Platforms past a $2 trillion market cap.
So, investors looking for an attractively valued stock that could deliver solid gains in the long run would do well to consider buying Meta Platforms right away.
