The paradigm shift brought about by artificial intelligence (AI) is changing the face of the technology landscape. If you’re looking for evidence of this trend, nowhere is it more evident than in the list of the world’s largest companies by market capitalization.
Microsoftleader in AI-driven assistants, with a market cap of $3.37 trillion, ahead of the previous champion. Apple$3.27 trillion, Inc. has been involved in AI for more than a decade and recently announced major AI updates for many of its devices. Nvidia is the poster child for AI chipmakers and the third largest company with a market capitalization of over $3 trillion. The leaders are closely followed by Alphabet, AmazonAnd Meta platforms – all leaders in generative AI – with market caps between $1.31 trillion and $2.29 trillion.
With a market cap of approximately $891 billion (at the time of writing), Taiwanese semiconductor production (NYSE: TSM)often referred to as TSMC, is on track to join this elite group of companies, probably sooner or later. AI adoption continues to gain traction, driving demand for chips used in the process. As the world’s largest semiconductor foundry, TSMC seems destined to join this exclusive fraternity.
A chip from the old block
After years of relative obscurity, it appears that TSMC’s time in the spotlight has come. The company describes itself as “the world’s largest and best semiconductor foundry,” and occupies an enviable position in the AI revolution. More specifically, AI processing requires state-of-the-art semiconductors, and TSMC is the chipmaker to the stars. Its largest customers include Nvidia, Arm positions, Advanced micro devicesand Apple, among many others.
The company’s trajectory has changed in recent years, however. TSMC once relied on smartphone chips for the bulk of its revenue, but high-performance computing (HPC), which involves specialized chips used to process AI, has become the company’s biggest moneymaker, recently accounting for 46% of revenue.
TSMC’s growth is accelerating. Revenue rose 16.5% year-on-year to $18.9 billion in the first quarter, while earnings per share (EPS) of $1.38 rose 5%, as the company increased spending on research and development (R&D) to keep pace with evolving technology.
The company expects this growth spurt to continue. Management’s outlook predicts revenue of $20 billion in the second quarter, at the midpoint of forecast, or growth of about 28%. That forecast could turn out to be conservative. In April and May, the company reported revenue growth of 60% and 30% year-over-year, respectively, far exceeding management’s forecasts.
The Road to $1 Trillion
TSMC occupies a notable place in the AI ecosystem. Because its processors are used by many of the biggest names in the industry, TSMC can benefit from the accelerated adoption of generative AI, which has made waves over the past year. Moreover, rising sales provide evidence that management is seizing this opportunity. As such, the TSMC should soon plunge into the company of trillionaires.
According to Wall Street, TSMC is expected to generate revenue of $85.17 billion in 2024, which equates to an expected price-to-sales (P/S) ratio of around 10.5. Assuming the P/S remains the same, TSM would need to grow its revenue annually to around $95 billion to support a market cap of $1 trillion.
What’s even more interesting is that Wall Street is already predicting revenue growth of 32% and 22% in 2024 and 2025, respectively. If the company clears those relatively low thresholds, it will likely reach a market cap of $1 trillion sometime in 2025. However, given the excitement surrounding AI, it could happen even sooner.
The runway for future growth is compelling. During the first quarter earnings call, CEO CC Wei said, “For the next five years, we forecast [AI-related revenue] to grow at 50% CAGR [compound annual growth rate] and to increase this percentage to more than 20% of our turnover by 2028.”
Estimates regarding the continued spread of AI support his conclusions. According to global management consulting firm McKinsey & Company, generative AI is expected to add between $2.6 trillion and $4.4 trillion annually to the global economy over the next 10 years. It’s worth noting that even the most conservative estimates are trending upward as new use cases for AI are discovered.
Finally, TSMC’s valuation, at 27 times forward earnings, is compelling and offers a cheaper way to invest in the vast opportunities presented by AI.
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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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, 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.
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