The Trillion-Dollar Club: Are These Stocks Too Expensive?

Susan Dziubinski: Hi. I’m Susan Dziubinski with Morningstar. Nvidia NVDA was in the news again last week as its market capitalization crossed the $1 trillion dollar mark. The chipmaker’s stock soared after the company’s first-quarter earnings beat and stellar second-quarter forecast.

Today, we’re taking a look at the prospects for Nvidia and the other members of the trillion-dollar club, which include Apple AAPL, Microsoft MSFT, Google’s parent Alphabet GOOGL, and Amazon AMZN.

Interestingly, all members of the club today have a few things in common.

First, the members of the trillion-dollar club all have some connection to the tech industry. They also all land in the large-cap growth section of the Morningstar Style Box. All of the trillion-dollar companies earn wide economic moat ratings from Morningstar. What’s that mean? That means that these companies have carved out significant advantages that should allow them to fight off competitors for the next two decades.

The companies in the trillion-dollar club today also earn Exemplary Capital Allocation Ratings from Morningstar, which means that we think their managers have done an excellent job of managing balance sheets, pursuing effective growth strategies, and maintaining attractive shareholder distribution policies.

Simply put, the companies in the trillion-dollar club are all exceptionally well-run firms with more growth ahead of them.

But when it comes to investing in the trillion-dollar club’s members, some of the stocks are cheaper than others. Specifically, the stocks of two of the club’s members are on sale.

The Trillion-Dollar Club: Are These Stocks Too Expensive?

1. Apple AAPL
2. Microsoft MSFT
3. Alphabet GOOGL
4. Amazon.com AMZN

Both Amazon and Alphabet look undervalued to us today, trading below our fair value estimates. We thought Amazon’s first-quarter results looked good, thanks to e-commerce and advertising, while Amazon Web Services decelerated. We think Amazon stock is worth $137 per share.

Alphabet, meanwhile, saw its search and cloud business drive growth during the recent quarter, while YouTube and network ad revenue was pressured. We maintained our $154 fair value estimate.

Microsoft stock looks about fairly valued, as it trades near our current fair value estimate. The company showed all-around strength in the latest quarter, with meaningful upside on both the top and bottom lines. And the outlook for the coming quarter was also better than expected, which led us to raise our fair value estimate to $325 from $310.

Shifting gears, Apple stock is overvalued according to our metrics. Apple’s quarterly results surpassed our expectations, thanks to outperformance in iPhone and services revenue. However, we remain cautious of the next several quarters as macroeconomic headwinds persist. We think Apple stock is worth $150 per share.

And lastly, Nvidia, which may or may not still be in the trillion-dollar club as you’re watching this, looks overvalued according to Morningstar’s measures. After those blowout results last quarter and stunning forecast, we did raise our fair value estimate to $300 per share from $200 per share, but the stock still looks quite expensive to us.

For more stock ideas, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.

Strategist Abhinav Davuluri and senior analysts Dan Romanoff and Ali Mogharabi provided the research behind this segment.

Watch “3 High-Quality Stocks Top Money Managers Are Buying” for more from Susan Dziubinski.