Palantir Technologies is currently worth $300 billion, but Shopify and Intuitive Surgical are growing quickly enough to top that figure within three years.
Shopify is the second-largest e-commerce company in the United States and Western Europe as measured by gross merchandise volume.
Intuitive Surgical is the leader in robotic-assisted surgery, and the midyear launch of its da Vinci 5 system should drive continued strength in the business.
Palantir Technologies stock has advanced 435% in the past year, bringing its market value to $300 billion as of June 7. But two Nasdaq stocks, Shopify(NASDAQ: SHOP) and Intuitive Surgical(NASDAQ: ISRG), are growing quickly enough to top that figure in three years. Here's what that would mean for shareholders:
Shopify is currently worth $145 billion. It would achieve a market value of over $300 billion if its stock price increased 107% over the next three years, which implies annual returns of 27.4%.
Intuitive Surgical is currently worth $200 billion. It would achieve a market value of over $300 billion if its stock price increased 50% in the next three years, which implies annual returns of 14.5%.
Here's what investors should know about Shopify and Intuitive Surgical.
Images source: Getty Images.
1. Shopify
Shopify develops e-commerce software and services that help merchants run their businesses across multiple channels, including online marketplaces, social media, mobile apps, and branded websites. The company has won substantial market share. Its merchants account for over 12% of online retail sales in the U.S. and 6% in Western Europe. That makes Shopify the second-largest e-commerce company behind Amazon in those regions.
Importantly, Forrester Research recently recognized Shopify as a technology leader in wholesale commerce (also known as business-to-business or B2B commerce) solutions. That's particularly encouraging because the wholesale commerce market is 4 times bigger and growing much more quickly than the retail commerce market, according to Grand View Research.
Shopify reported reasonably good first-quarter financial results. Revenue increased 27% to $2.3 billion, and non-GAAP (generally accepted accounting principles) net income jumped 25% to $0.25 per diluted share. One encouraging metric was the 10-basis-point increase in take rate, which measures sales as a percentage of gross merchandise volume. A higher take rate indicates that merchants are adopting more add-on services, such as Shopify Payments.
Wall Street expects adjusted earnings to increase by 23% annually through 2026. That makes the current valuation of 90 times earnings look rather expensive. However, analysts have usually underestimated the company. Shopify has beaten the consensus earnings estimate by an average of 11% over the last four quarters.
If that trend continues, the stock price could increase by 107% (giving the company a market value above $300 billion) in the next three years while the valuation falls to a cheaper 85 times earnings. Admittedly, that is still an expensive valuation, which makes my prediction somewhat aggressive. But I think Shopify is an excellent long-term investment, even if it fails to top $300 billion within three years.
2. Intuitive Surgical
Intuitive Surgical is the pioneer and leader in robotic-assisted surgery. It is best known for da Vinci systems, which enable surgeons to perform minimally invasive procedures with greater precision across several specialties, including urology, gynecology, and general surgery (e.g., hernia repair). The company also sells add-on instruments and accessories that must be replaced with each procedure, as well as supporting software for analytics and training.
Intuitive Surgical reported solid first-quarter financial results. Revenue climbed 19% to $2.2 billion due to a combination of increased da Vinci procedure volume and higher systems placements. Meanwhile, non-GAAP net income increased 21% to $1.81 per diluted share.
Intuitive Surgical has an important catalyst on the horizon in the midyear launch of its da Vinci 5 system, which features 10,000 times more computing power than its predecessor and innovations such as force feedback. Clinical evidence is still limited, but early data shows that force feedback technology may reduce the incidence of surgical trauma and promote faster recovery times.
Importantly, Intuitive Surgical makes the vast majority of its systems in the U.S., but tariffs still represent a headwind because the company sources supplies globally and sells into foreign markets. Management estimates proposed tariffs will reduce its gross margin by 1.7 percentage points this year. But that figure leaves room for upside if the U.S. can negotiate trade deals.
Wall Street expects adjusted earnings to grow at 10% annually through 2026, which makes the current valuation of 73 times earnings look very expensive. But analysts have regularly missed the mark. Intuitive Surgical beat the consensus estimate by an average of 14% over the last four quarters. If that continues, the stock could increase by 50% (giving the company a market value above $300 billion) over the next three years while the valuation falls to a more reasonable 65 times earnings.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon, Palantir Technologies, and Shopify. The Motley Fool has positions in and recommends Amazon, Intuitive Surgical, Palantir Technologies, and Shopify. The Motley Fool has a disclosure policy.
