1 unstoppable stock that could join Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta in the $1 trillion club.

WhatsApp Group Join Now
Telegram Group Join Now
Instagram Group Join Now

This leading semiconductor company is seeing strong growth thanks to artificial intelligence (AI), and investors can get it to sing.

Since early last year, it has become clear that advances in artificial intelligence (AI) are leading to a paradigm shift in technology. Nowhere is this more evident than the list of the world's most valuable companies measured by market cap.

Microsoft Over the past year or so, Creative has made headlines with its ultimate moves into AI and is currently the only company with a market cap of more than $3 trillion. apple has been toying with AI for years, and while it has ceded its market cap crown to Microsoft, it remains in second place, valued at $2.9 trillion. Nvidia Its industry-leading AI-centric computer chips have grown rapidly through the ranks, currently valued at $2.3 trillion. the alphabet, AmazonAnd Meta platforms Add the other top 10 AI players, with market caps between $2.1 trillion and $1.2 trillion.

With a market cap of around $789 billion (as of this writing), that seems obvious. Taiwan Semiconductor Manufacturing (TSM -0.36%)Often referred to as TSMC, is seeking membership in this elite community. Given the booming demand for semiconductors needed for AI, TSMC's entry could be sooner rather than later.

Image source: Getty Images.

You want chips with it?

As the world's largest contract chipmaker, TSMC is in an enviable position in the industry. The company does not make semiconductors for its own use, but is contracted to make them for major tech companies, including Nvidia. Arm Holdings, Advanced Micro Devicesand Apple, among others.

At one time, the bulk of TSMC's revenue came from processors used in smartphones, but high-performance computing (HPC), which includes chips used for AI, has taken the top spot recently. It accounts for 46% of the revenue.

Business is booming. In the first quarter, revenue rose 16.5% to $18.9 billion, while its earnings per share (EPS) rose 5% to $1.38. Management expects its rapid growth to continue, with its guidance forecasting second-quarter revenue of $20 billion, which would represent growth of 28 percent.

Path to $1 trillion

TSMC is in an enviable position in the AI ​​revolution. It's AI Stars' foundry partner, and since it makes chips for all comers, it's not part of the fierce competition for AI chip supremacy. Given its position in the space and its current size, I don't think it will take long for it to join the billionaire community.

According to Wall Street, TSMC is set to generate revenue of $84.8 billion in 2024, giving it a forward price-to-sales (P/S) ratio of about 9.3. Assuming its P/S remains constant, TSM would need to grow its revenue to about $107 billion annually to support a $1 trillion market cap.

Interestingly, Wall Street is forecasting 22% revenue growth in both 2024 and 2025. If the company achieves these fairly reasonable benchmarks, it could easily achieve a $1 trillion market cap by 2026.

There may be more to come. TSM's management expects the company's AI-related revenue to grow at a compound annual growth rate of 50% over the next five years and account for 20% of TSM's total revenue by 2028.

This is not surprising given the magnitude of the opportunity. According to global management consulting firm McKinsey & Company, generative AI is expected to generate between $2.6 trillion and $4.4 trillion in economic value annually over the coming decade. However, estimates continue to rise as more applications for AI are added to the mix.

Finally, at just 24 times forward earnings, TSMC's valuation is attractive, giving investors a cheap way to capitalize on the AI ​​revolution.

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena has positions at Alphabet, Amazon, Apple, MetaPlatforms, Microsoft and Nvidia. Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, MetaPlatforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.

WhatsApp Group Join Now
Telegram Group Join Now
Instagram Group Join Now

Leave a Comment