New stocks have IPOs that experience huge price swings in their first months as the market determines their true worth. This volatility presents both risks and rewards for investors.
It takes time for a startup’s share price to stabilize post-IPO. During this period, research can help smart money profit from inexpensive entries into firms poised for growth. However, those who act without due diligence risk heavy losses, especially with tech companies overhyped on debut. Missed expectations can lead to steep drops.
With patience, though, disruptive tech transformers of industries can generate fortunes if identified early. The following profiles three companies that, if realizing their visions, have the potential to someday join the elite trillion-dollar market cap club. Of course, all investing carries uncertainty. But for those with some risk tolerance, handwork to discern tomorrow’s giants holds potential for outsized returns. Let’s take a look at the potential trillion-dollar stocks:
Potential Trillion-Dollar Stocks: Reddit (RDDT)
I’d argue that Reddit’s (NYSE:RDDT) IPO was the most anticipated one in the post-COVID era. It is finally here, and there is a lot of debate going on whether or not you’re paying a good price for the stock as it sits at an $8.13 billion valuation as of writing. That alone makes it clear that a trillion-dollar value is extremely premature.
Still, this article discusses new stocks, and Reddit fits neatly into the theme. I think Reddit reaching a $1 trillion valuation is not unrealistic in a few decades. Growing active users by 37% year-over-year is very impressive, and it’s a real testament to how much Reddit has embedded itself as a destination of choice online for hundreds of millions. Reddit is actually the third-most visited website in the U.S., ahead of even Facebook. Millennials and Gen Z love this website.
Monetizing all that traffic is proving tougher than expected, though. Ad revenue increased, but not as drastically as other digital giants, even in this hot market. Reddit improved click-through rates by 40% YOY. But again, we need to wait many more quarters to truly judge the metrics here.
Astera Labs (ALAB)
A $1 trillion valuation for Astera Labs (NASDAQ:ALAB) is even more of a fantasy than Reddit. However, it is one of the only new stocks that have the possibility to reach that goal. Their technology focuses on emerging connectivity standards for data centers and offers promise. Technologies enabling faster data transfer speeds will be crucial to power tomorrow’s AI and machine learning applications, which are increasingly driving our digital world.
Of course, Astera will face fierce competition from industry heavyweights who are also investing in this space. However, their laser focus and smaller size could let them stake out early adoption of new specs more swiftly.
Gaining important design contracts from customers so early after coming to market is quite encouraging. It indicates the potential clients see in Astera. Still, for initial orders to translate into any financial benefits, it may take time to really ramp up. Long-term backers understand this volatility and will want to watch both the technological progress and business model closely over the years ahead.
Analysts expect revenue to increase from $291 million to $1.4 billion over the next five years, with EPS rising from 36 cents to $2.35 in the same timeframe.
To be honest, you’d be overpaying for the stock right now, but that is not what we’re discussing today.
Rubrik (RBRK)
Rubrik (NYSE:RBRK) describes itself as “a secure software platform to mitigate data loss with granular recovery and seamless management across multiple cloud environments.”
The IPO here has been better than expected. However, the real test will be translating that optimism into tangible customer benefits over the long haul. The top-line growth figures are very impressive here. Rubrik grew sales by around 29% to $175 million in the most recently reported quarter. However, you should keep an eye on the losses here. Operating losses increased from $262 million in 2022 to $307 million in 2023. Unless losses are narrowed significantly in the coming years, shareholders will have to bear the burden.
Again, I will make it clear that Rubrik will not reach a $1 trillion valuation anytime soon. If it does, it will take decades.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.