Will TSMC be worth more than Apple by 2030?

Taiwan Semiconductor Manufacturing (TSM 1.51%)or TSMC and Apple (AAPL -0.34%) they have enjoyed a fruitful relationship for the past decade. In 2014, Apple changed its chip orders from Samsung to TSMC and funded the Taiwanese chipmaker’s initial acquisitions ASMLextreme ultraviolet (EUV) lithography systems.

TSMC’s early adoption of these EUV systems, which optically etch circuit patterns on the world’s smallest chips, helped it to stay ahead of the curve. Intel in the process race to make more energy efficient chips. It also won Apple as a top customer and attracted much more attention from fabless chipmakers such as Nvidia, Advanced microdevicesand Qualcomm.

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Apple’s move to TSMC reduced its reliance on Samsung, which quickly evolved from its leading supplier to a major competitor in the smartphone market. It has also supported its primary chip production and reduced its reliance on third-party components.

Over the past 10 years, TSMC’s stock has risen 716% and increased its market capitalization to $885 billion. Apple shares rose 793% and raised its valuation to $3.47 trillion. But could TSMC become the more valuable tech giant by 2030?

What are the long-term catalysts for TSMC?

From 2016 to 2023, TSMC’s revenue grew at a compound annual growth rate (CAGR) of 13%, while its earnings per share (EPS) grew at a CAGR of 15%. Most of this growth was driven by the expanding smartphone market. It also thrived throughout the pandemic as more workers upgraded their computers for remote work and online classes, while growth in the artificial intelligence (AI) market boosted market demand for new data center chips. data.

As the world’s largest contract chip maker, TSMC’s sales typically ebb and flow with the cyclical growth cycles of the semiconductor industry. Its growth slowed in 2018 and 2019 as the memory chip market cooled, and its revenue fell in 2023 as the 5G upgrade cycle ended and global PC shipments fell.

But this year, TSMC expects the growth of the AI ​​market, the rise in smartphone sales and the stabilization of the PC market to boost its sales again. In the second quarter of 2024, it generated 52% of its revenue from the high-performance computing (HPC) market — which includes Nvidia, AMD and other AI chipmakers. That segment grew by 28% sequentially, surpassing all other end markets. Its smartphone revenue, which still accounted for 33% of the top line, fell 1% sequentially.

Analysts expect TSMC’s revenue to grow 30% in 2024, 24% in 2025 and 18% in 2026, and for EPS to grow at a CAGR of 25% from 2023 to 2026. But to maintain this momentum, TSMC will need to succeed ramps up production of 3 nanometer (nm) chips and starts producing the latest 2nm chips by early 2025.

If TSMC sticks to this schedule, it should maintain its lead in the closely watched trial race. It will also remain the focus of the semiconductor sector for the foreseeable future. However, its growth could still be disrupted by a recession; a conflict between China, the US and Taiwan; and Intel’s loss-making expansion of its primary foundries.

Could TSMC be worth more than Apple by 2030?

Assuming TSMC matches Wall Street expectations, grows its EPS at a 20% CAGR from 2026 to 2031, and continues to trade at 22 times forward earnings by early 2030, its stock could reach around 550 of dollars per share. That would represent a 220% gain from the current price, but would only increase the market cap to about $2.85 trillion.

This would still make TSMC less valuable than Apple today. Apple could face some headwinds by the end of the decade as its iPhone sales cool and regulatory headwinds limit growth in its services segment. However, I believe it could easily grow its EPS at a steady CAGR of at least 15% from fiscal 2023 (which ended last September) to fiscal 2031 as it ramps up its massive buybacks. If it simply clears that lowest bar and continues to trade at a reasonable 20 times forward earnings, its stock could rise to around $350 by 2030. That would increase its market cap by more than 50 %, up to 5.35 trillion dollars.

So for now, TSMC’s market cap is unlikely to eclipse Apple’s by 2030. That said, TSMC could still outperform Apple as an investment because it benefits from the broader expansion of the broader semiconductor market. Apple still has a lot of iron in the fire, but it faces much tougher competitive and regulatory challenges than TSMC.