The majority of leading global indices reached new highs in 2024, fueled by loose financial conditions and burgeoning enthusiasm for artificial intelligence (AI). In the U.S., this rally pushed the S&P 500 to fresh highs. And unwavering investor optimism and the prospect of stocks joining the trillion-dollar club maintained the surge.
Historically, the markets prefer challenging complacency among investors. This lesson seems particularly important today. Initially, market sentiment was buoyed by expectations of multiple interest rate cuts by the Federal Reserve, with predictions of up to seven reductions by January 2025.
However, contrary to these expectations, recent data indicates stronger-than-anticipated economic growth and rising inflation. Yet, investors remain undeterred. They are pivoting to a narrative of a reaccelerating economy bolstering the markets.
Despite this optimism, there are signs of caution. Analysts have been revising earnings estimates downward for this year and next, while the stock market’s strength is concentrated in a select group of mega-cap stocks.
Therefore, if rate cuts are unlikely and earnings fundamentals are weakening, what continues to drive the stock market’s ascent? According to Morgan Stanley (NYSE:MS), two factors stand out.
First, liquidity levels are unusually high. Significant cash inflows from banks, money markets and government stimulus outpace the Fed’s tightening efforts. However, this influx of liquidity may be nearing its limit as the buffers of excess savings are depleted.
Second, excitement around AI’s potential to enhance productivity is high. Morgan Stanley Research suggests AI could increase net profit margins for S&P 500 companies by 30 basis points next year, particularly benefiting sectors like software, consumer services and financial services.
As Wall Street analysts boost their S&P 500 targets, we look at three stocks joining trillion-dollar club as soon as this year.
Eli Lilly (LLY)
Pharmaceutical giant Eli Lilly (NYSE:LLY) has a market capitalization that exceeds $700 billion. The company has made a significant strategic bet on GLP-1 receptor agonists. In particular, its standout drug, Mounjaro (tirzepatide) targets obesity and type 2 diabetes. This has fueled a massive rally in LLY stock given the size of this untapped market.
This way, Eli Lilly capitalizes on the growing demand for effective weight-loss treatments, an area with substantial market potential. Mounjaro has shown promising results in clinical trials, demonstrating substantial weight loss. And it shows improvement in glycemic control, positioning Eli Lilly as a key player in this lucrative sector.
The company’s exposure to the GLP-1 market enhances its portfolio and potential revenue stream. Recently, the U.S. Federal and Drugs Administration (FDA) reported that nearly every dosage of Lilly’s tirzepatide-based product is currently experiencing a shortage.
Also, LLY said that it doesn’t expect to meet demand for weight-loss drugs this year. As a result, this biotech giant remains uniquely positioned to see earnings rise in the coming years.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is strategically positioning itself within the burgeoning AI chip market. AVGO recognizes the increasing demand for high-performance semiconductors in AI applications.
Further, Broadcom’s portfolio includes advanced networking and connectivity chips, essential for AI data centers and infrastructure. The company’s investment in developing AI-specific technologies reflects a clear bet on the continued expansion of AI capabilities across various sectors.
This move not only diversifies Broadcom’s offerings but also increases its exposure to the high-growth AI segment. In March, the company’s stock surged on the back of the better-than-expected AI-focused analyst event.
Finally, Broadcom reported a robust fiscal first quarter in March, with its adjusted EPS of $10.99 surpassing Wall Street’s consensus by 6%. This performance was driven by strong results in the AI semiconductor sector and effective synergy realization immediately following its acquisition of VMware.
The company’s market capitalization stands at almost $580 billion.
Exxon Mobil (XOM)
Exxon Mobil Corporation (NYSE:XOM) stands to benefit significantly from rising oil prices, bolstered by its extensive upstream projects. The company’s strategic investments in key areas such as the Permian Basin, offshore Guyana and Brazil are poised to boost its production capacity and operational efficiency.
As a leading player, XOM’s focus on expanding its upstream operations not only strengthens its market position. But also, it aligns with global energy demands, ensuring sustained growth amid rising oil prices.
Exxon Mobil Corporation could see its stock price explode in case the rising Middle East tensions translate into a direct conflict between Israel and Iran. Escalating tensions have raised fears of potential supply disruptions.
The uptick in oil prices, up almost 20% since January, poses a risk of further increasing gasoline prices across the U.S. and globally. As a result, companies like Exxon Mobil Corporation and Chevron are positioned to benefit from the rapidly evolving situation. Hence, they would be stocks joining the trillion-dollar club.
Moreover, Ukrainian strikes on Russian oil facilities and Houthi attacks on shipping routes in the Red Sea are also contributing to higher oil prices. Compounding these issues, analysts pointed toward a slower-than-anticipated rebound in U.S. oil production. It had been hindered by cold weather events in January, further tightening the supply.
Exxon Mobil’s market capitalization sits at just below $500 billion.
On the date of publication, Shane Neagle 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.