MKM Analyst, Rob Sanderson, speculates on the first company to reach a Trillion Dollar Valuation in the coming years and, not surprisingly, the first company on his list is Apple (NASDAQ: AAPL), with an $880Bn market cap. The analyst stated earnings estimates have increased by 6% this year as enthusiasm for the iPhone 8/ iPhone X cycle has grown through the year. We have no official opinion on the strength of this product cycle, the sustainability of AAPL’s high hardware margin and/ or longer-term earnings power.

Over the past 12-months, the EV/forward sales multiple for Amazon (NASDAQ: AMZN) expanded from 2.2x to 2.6x, an increase of about 16%. We think this is because the fastest growth areas for the company are the highest margin categories (specifically advertising, AWS and seller services) and that incremental disclosure has allowed investors to better attribute value to these opportunities. Assuming AMZN makes consensus for 2019, grows by another 25% in 2020 and trades at 2.6x EV/ sales, the company could be valued at $875Bn by 2020. Valuation would exceed $1 trillion by 2021 with a 15% growth outlook for that year.

The analyst believes that Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is the most unrecognized value of the mega-caps. The stock trades at 22x group level earnings on CY18 consensus, but he believes there is significantly more value in the sum of the parts. Without action to unlock hidden value, we think Alphabet's (NASDAQ: GOOGL) path to $1 trillion is more likely through 15% EPS growth in 2020 and 2021 with a 20x forward P/E and the $1Tn milestone some time in 2021.

If Facebook (NASDAQ: FB) meets consensus expectations for next year, then has a 30% growth outlook for CY20 and maintains its current 25x forward P/E, the analyst estimates a market cap of $810Bn by 2020. However, he expects material upside.

The analyst is most confident in the growth drivers behind Alibaba (NYSE: BABA) over the others mentioned in this article. Online consumption in China is growing more than 2x the U.S. BABA’s monetization rate is 1/6th to 1/8th that of AMZN globally but expanding quickly (up 28% y/y last quarter). We believe that opportunities for further monetization gains are plentiful, largely within the company’s control and that ad-loads represent a considerable growth driver that is at the discretion of management.

Sanderson also highlights Tencent, the fastest growing of the mega-caps and has the highest P/E at 39x. On in-line results, a 30% growth outlook for CY20 and a stable multiple, Tencent could reach $840Bn in market cap by 2020. Tencent has been materially beating consensus. With 12% EPS upside and a stable multiple, $1 trillion could be achieved by 2020, but we think maintaining 39x P/E is unlikely. With moderation to 30x, $1tn could be achieved in 2021 if the company beats consensus by 15% then grows by 35% for two more years.

Sanderson concluded, "We think that BABA may have the best chance among Internet mega-caps to become the first $1 trillion company."