A stock incentive plan can be a great motivator for executives, because if the goals are reached, it's a win-win for both management and investors. And Meta Platforms (META +2.06%) recently made headlines with a highly ambitious incentive plan that will see its top executives -- excluding Mark Zuckerberg -- max out their stock options if the company's valuation rises to more than $9 trillion by 2031.
To put that into perspective, a $9 trillion market cap would be more than double what Nvidia, the world's most valuable company in the world, is worth today. Just how likely is it that Meta's stock reaches that high a valuation?
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Here's how much Meta's stock would have to grow by (annually) to reach $9 trillion in market cap
Meta Platforms has a market cap of just under $1.4 trillion today. It's one of the largest tech stocks in the world, and it has some amazing assets in Facebook, Messenger, WhatsApp, and Instagram. It's also investing heavily in artificial intelligence (AI) to supercharge its future growth.
But even if it succeeds and accelerates its growth significantly, getting to $9 trillion in market cap will be a tall task, to say the least. To get to that valuation in roughly five years, it would need to grow by approximately 560%. That averages out to a compound annual growth rate of 46%. Each year, it would need to generate that kind of return. And if it has an off year, it'll need to make up for it. Suffice to say, that's an extremely ambitious target, one that most investors would probably be downright shocked if it could reach.
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Why I think Meta's stock is more likely to crash
Investors don't appear optimistic about the social media stock these days. It's down around 19% this year, and it was recently hit with a $375 million fine related to child safety issues. And that's a problem that could impact its long-term growth prospects as regulators look to greater restrictions around social media as a whole, particularly as it pertains to young users. Meanwhile, Meta has also been spending feverishly on AI in what I believe may be another money pit for the business, not unlike its metaverse strategy, which it's now distancing itself from.
What's worked for the company in the past may not be nearly as successful in the future, which is why I don't believe Meta Platforms can rise more than 500% or even double in value within the next five years. I think it's much more likely to crash than surge. By 2031, I don't think it'll be anywhere near $9 trillion, and it may even be lucky to just remain above $1 trillion.
