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

The breathtaking rally 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 standard-bearers of this massive surge that has sent the entire market higher, many investors—already watching the sharp price gains in these names—are now looking for the “next” Nvidia or the “next” Microsoft.

However, investors can still take advantage of growth opportunities among mega-caps, as the next round of promising contenders head towards the coveted $1 trillion market cap club. To that end, here are three marquee stocks that should be on investors’ radar heading into the second half of 2024 – all of which have received positive ratings from the analyst community, with significant upside potential over at current levels.

#1. Broadcom

Founded in 1991 and headquartered in San Jose, Broadcom (AVGO) is one of the world’s leading semiconductor companies. They design, develop and supply a wide range of analog and digital integrated circuits and other related products. In simpler terms, they make the tiny chips that power many of our electronic devices and also develop software for data center networking. The company currently has 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%, which is above the technology sector median. Broadcom, in particular, has consistently increased its dividends over the past 14 years, and with a payout ratio of 46.73%, there is plenty of scope for continued dividend growth in the years ahead.

Broadcom’s numbers for the latest quarter were impressive, with both revenue and earnings beating estimates. Revenue for the fiscal second quarter was reported to 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.

In the second quarter, the company reported operating cash flow and free cash flow of $4.58 billion and $4.49 billion, respectively. The company ended 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 have rated AVGO stock as a “Strong Buy,” with an average price target of $1,828.30, indicating upside potential of about 13.8% from current, pre-split levels. Of the 31 analysts covering the stock, 28 have a “Strong Buy” rating and 3 have a “Hold” rating.

#2. You’re here

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

Tesla stock is down 20.4% on a YTD basis as the company has posted 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 EV seller, holding about 51% of the U.S. EV market by the end of 2023, and expects to sell 20 million EVs by 2030. Aside from the usual crop of TSLA bulls, none other than Goldman Sachs (GS) seemed bullish on the prospects of a new low-cost EV model, reportedly 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 Tesla’s autonomous and FSD vision, which appears to be turning a corner with this latest FSD v12.4 and now FSD testing in China is underway.”

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.

Among 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 stock is up 55.3% year to date and has nearly doubled over the past year. The stock was propelled higher by booming sales of its blockbuster drugs GLP-1, 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 further growth. A new study by Lilly found that the company’s diabetes treatment drug, Mounjaro, appeared to reduce the severity of sleep apnea, while reducing weight and improving blood pressure and other health measures, in obese patients who took the drug for a year.

Eli Lilly’s Alzheimer’s drug, donanemab, is nearing 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), surpassing that of competitor Biogen (BIIB) Leqembi. This bodes well for eventual 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 (directly or indirectly) any position in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. For more information, please see Barchart’s disclosure policy here.