3 Large-Cap Stocks to Consider Before They’re Worth $1 Trillion

The stunning rise in large-cap stocks, fueled in large part by the artificial intelligence (AI) frenzy, has exceeded the expectations of even the most optimistic analysts. While Nvidia (NVDA), Microsoft (MSFT), Meta (META), Amazon (AMZN), and Google (GOOGL) have been the poster boys for this massive surge that has sent the entire markets higher, many investors – who are already observing the sharp price increases of these names – are now looking for the “next” Nvidia or the “next” Microsoft.

However, there are still exceptional growth opportunities among mega-caps for investors to capitalize on, as the next round of promising competitors race toward the coveted $1 trillion market cap club. To that end, here are three marquee stocks that should be on investors’ radar as we head into the second half of 2024 – all of which have earned positive ratings from the analyst community, with significant upside potential from current levels.

#1. Broadcom

Founded in 1991 and headquartered in San Jose, Broadcom (AVGO) is one of the world’s leading semiconductor companies. It designs, develops and supplies a wide range of analog and digital integrated circuits and other related products. In simpler terms, it makes the tiny chips that power many of our electronic devices and also develops software for data center networks. The company currently holds a colossal market capitalization of $738.5 billion.

AVGO stock is up 43.8% year to date and offers a dividend yield of 1.32%, above the tech sector median. Notably, Broadcom has increased its dividends consistently over the past 14 years, and with a payout ratio of 46.73%, there is plenty of room for continued dividend growth in the years to come.

Broadcom’s numbers for the latest quarter were impressive, with revenue and profit beating estimates. Revenue for the fiscal second quarter would be $12.49 billion, representing year-over-year growth of 43%. Adjusted EPS increased 6.2% over the same period to $10.96, beating the consensus estimate of $10.85. In fact, Broadcom’s EPS has exceeded expectations in each of the last five quarters.

Longer term, over the past 10 years, the company’s revenue and EPS have registered CAGRs of 31.33% and 32.65%, respectively.

For the second quarter, the company reported operating cash flow and free cash flow of $4.58 billion and $4.49 billion, respectively. The company closed the quarter with a healthy cash balance of $9.81 billion.

Broadcom’s positive momentum looks set to continue, fueled by its dominance in the AI ​​market. Sales of AI-related chips soared 280% year-over-year to $3.1 billion last quarter, capturing 25% of revenue. Broadcom’s chips are part of seven of the eight major hyperscale AI clusters deployed today, solidifying their leadership. Additionally, they hold a significant 60% market share in custom ASICs, a market expected to reach over $30 billion, with an annual growth rate of 20%.

The tech giant is also expanding its presence in the wireless sector through a multi-year, multi-billion dollar deal with Apple (AAPL) for 5G components, strengthening its presence in 5G mobile phones. In addition, they are addressing weaknesses in storage connectivity and broadband by increasing content per server and capitalizing on the growth of cloud data centers.

Overall, analysts rated AVGO stock a “Strong Buy,” with an average price target of $1,828.30, indicating ~13.8% upside potential from current levels , before the split. Of the 31 analysts following the stock, 28 have a “Strong Buy” rating and 3 have a “Hold” rating.

#2. Tesla

Under the leadership of its charismatic and maverick CEO Elon Musk, Tesla (TSLA) is a leader in the electric vehicle (EV) market. The Austin-based company is a leading manufacturer of electric vehicles, solar panels and battery storage systems. Its goal is to accelerate the global transition to sustainable energy. Tesla’s market capitalization, which surpassed the $1 trillion mark at its peak a few years ago, currently stands at $629.6 billion.

Tesla shares are down 20.4% year-to-date as the company reported disappointing delivery and margin numbers this year.

Additionally, Tesla’s latest Q1 results were disappointing on both revenue and earnings. The company reported revenue of $21.30 billion, down 9% from a year earlier, as automotive revenue slowed 13% year-over-year to $17.38 billion. EPS fell even more sharply by 47% to $0.45, below the consensus estimate of $0.49. This is Tesla’s third consecutive quarter of declining earnings amid the EV price war.

Production and deliveries of 433,371 vehicles and 386,810 vehicles fell by 2% and 9%, respectively, on an annual basis.

However, the company’s liquidity position remained strong, as it closed the quarter with a cash balance of $26.86 billion, well above its debt level of $9.91 billion.

Tesla’s disappointing results in recent quarters have been attributed by the company to several factors, including persistent inflation, cheap Chinese electric vehicles, geopolitical conflicts and an arson attack at the Berlin Gigafactory. All of these appear to be issues that Tesla can recover from, given its strong positioning in the competitive electric vehicle market.

Tesla currently remains the world’s largest seller of electric vehicles, holding approximately 51% of the U.S. electric vehicle market by the end of 2023, and plans to sell 20 million electric vehicles by 2030. Aside from the usual crop of TSLA bulls, none other than Goldman Sachs. (GS) seemed optimistic about the prospects for a new low-cost EV model, priced between $25,000 and $30,000, suggesting it could provide a substantial boost to annual volumes.

Tesla is also investing heavily in the autonomous driving market, a sector that is expected to grow at a compound annual growth rate of 28.6% by 2032. To dominate this sector, the company has already invested $1 billion in AI infrastructures. Tesla is diligently refining its software and hardware to create self-driving cars and ride-sharing services, relying on an AI network trained from a massive set of real-world driving data.

In fact, in a recent note, Wedbush analyst Dan Ives wrote: “Ultimately, the key to reaching a $1 trillion+ valuation is for the autonomous and FSD vision to come together for Tesla, which appears to be turning a corner with this latest FSD v12.4 release and now the ongoing FSD testing in China.”

Overall, analysts have a consensus rating of “Hold” for TSLA stock. The shares have already surpassed their average price target, while the target high of $310 indicates approximately 56.7% upside potential from current levels.

Of the 33 analysts covering the stock, 9 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 15 have a “Hold” rating and 7 have a “Strong Sell” rating.

#3. Eli Lilly

We conclude our list of mega-caps with Eli Lilly (LLY). Founded in 1876 and headquartered in Indianapolis, Eli Lilly is a global healthcare leader in the discovery, development, manufacturing and marketing of medicines to treat a variety of diseases. Its areas of focus include oncology, diabetes, immunology and neurology. The company currently has a market capitalization of $863.9 billion.

LLY shares are up 55.3% year-to-date and have nearly doubled over the past year. The stock has been driven higher by stellar sales of its blockbuster GLP-1 drugs, Mounjaro for diabetes and Zepbound for weight loss. LLY also pays a modest dividend yield of 0.57%.

Lilly’s results for the most recent quarter were marked by rising revenue and profits, as well as double-digit annual growth. First-quarter revenue rose 26% from a year earlier to $8.8 billion, while earnings jumped 59.3% to $2.58 per share, beating estimate consensus of $2.47. It is worth noting that over the last five quarters, the company’s EPS has exceeded expectations four times.

Overall, over the past five years, the company’s revenue and EPS have grown at a CAGR of 10.69% and 19.26%, respectively.

Lilly generated net cash from operating activities of $1.17 billion and closed the quarter with a cash and equivalent balance of $2.46 billion.

The pharmaceutical giant also appears poised for continued growth. A new study by Lilly found that the company’s diabetes drug, Mounjaro, appeared to reduce the severity of sleep apnea, as well as reduce weight and improve blood pressure and other health parameters, in obese patients who took the drug for a year.

Adding to the excitement, Eli Lilly’s Alzheimer’s drug, donanemab, is close to approval. On June 10, a key FDA advisory committee reviewed the drug. Lilly’s data showed a 35% slowdown in cognitive decline (measured by iADRS), outperforming competitor Biogen (BIIB) Leqembi. This bodes well for potential approval and market share leadership.

Lilly also has other drugs in the pipeline, including orforglipron for type 2 diabetes and retatrutide for weight loss.

Analysts give an overall “strong buy” rating to LLY stock, which has already surpassed its average price target of $832.18. The high price target of $1,023 implies an expected upside potential of around 13% from current levels. Out of 21 analysts covering the stock, 18 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 2 have a “Hold” rating.

As of the date of publication, Pathikrit Bose did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data contained in this article are provided for informational purposes only. For more information, please see Barchart’s disclosure policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.