Since the beginning of last year, it has become crystal clear that advances in artificial intelligence (AI) are causing a paradigm shift in technology. Nowhere is this more evident than in the list of companies that are among the most valuable in the world, measured in terms of market capitalization.
Microsoft made headlines this past year with its definitive steps into generative AI and is currently the only company with a market capitalization over $3 trillion. Apple has been playing with AI for years, and although it has ceded its market cap crown to Microsoft, it remains stubbornly clinging to second place, worth $2.9 trillion. Nvidia has quickly risen thanks to its industry-leading AI-focused computer chips, which are currently worth $2.3 trillion. Alphabet, AmazonAnd Metaplatforms round out 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 (at the time of writing), that seems clear Taiwanese semiconductor manufacturing (NYSE: TSM), often referred to as TSMC, is fighting for membership in this elite fraternity. Given the increasing demand for the semiconductors needed for AI, TSMC’s entry could come sooner rather than later.
Would you like chips with that?
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 technology companies, including Nvidia. Arm positions, Advanced micro devicesand Apple, among others.
Once the majority of TSMC’s revenue came from processors used in smartphones, but high-performance computing (HPC), including chips used for AI, has taken the top spot, recently accounting for 46% of revenue .
Business is picking up. In the first quarter, revenue rose 16.5% to $18.9 billion, while earnings per share (EPS) of $1.38 were 5% higher. Management expects accelerating growth to continue, predicting second-quarter revenue of $20 billion at the midpoint of expectations, which would represent growth of 28%.
The Road to $1 Trillion
TSMC is in an enviable position in the AI revolution. It is a foundry partner of the AI stars, and since it makes chips for everyone, it is 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 very long to join the society of trillionaires.
According to Wall Street, TSMC is poised to generate $84.8 billion in revenue by 2024, giving it a price-to-sales ratio (P/S) of around 9.3. Assuming the price-to-earnings ratio remains constant, TSM would need to grow its revenue to roughly $107 billion per year to support a market cap of $1 trillion.
Interestingly enough, Wall Street is predicting 22% revenue growth in both 2024 and 2025. If the company hits these pretty reasonable benchmarks, it could easily reach a $1 trillion market cap by 2026.
Much more could follow. TSM management expects the company’s AI-related revenues to grow at a compound annual growth rate of 50% over the next five years and to account for 20% of TSM’s total revenue by 2028.
That’s not surprising, given the size of the opportunities. According to global management consulting firm McKinsey & Company, generative AI is expected to generate an economic value of between $2.6 trillion and $4.4 trillion per year over the next decade. However, estimates continue to rise as more applications for AI join the mix.
Finally, at just 24 times forward earnings, TSMC is attractively priced, giving investors a cheap way to take advantage of the AI revolution.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
1 Unstoppable Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta in the $1 Trillion Club was originally published by The Motley Fool
