Meet the Supercharged Growth Stock That Could Join Apple, Microsoft, and Nvidia in the $2 Trillion Club by 2029

The rapid and accelerated adoption of artificial intelligence (AI) has gained momentum since the beginning of last year. The clearest evidence of these secular tailwinds can be found in the list of the world’s largest companies, as measured by market capitalization. Indeed, 7 of the 10 most valuable companies in the world are undoubtedly pioneers in the field of AI.

Topping the charts are three of the world’s leading technology providers. Apple ranks first at $3.4 trillion and Microsoft and Nvidia they’re not far behind, with market caps of $3 trillion and $2.6 trillion, respectively.

With a market cap of around $832 billion (at the time of writing), Taiwan Semiconductor Manufacturing (TSM 1.76%)often referred to as TSMC, it might seem like a dark horse to join this exclusive fraternity, but the writing is on the wall. New use cases for generative AI are being discovered at a breakneck pace, making semiconductors capable of these advanced calculations indispensable. As the world’s largest foundry, TSMC seems like a shoo-in to join the ranks of this prestigious club.

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Do you want chips with that?

TSMC has been quietly building its legacy for decades, but has suddenly stepped into the limelight. The company bills itself as “the world’s largest and best semiconductor foundry,” making it a key player in the paradigm shift toward AI.

Because AI can only be realized using the most cutting-edge semiconductors, TSMC is a leader in the field. Its client list reads like a veritable who’s who of AI, including Nvidia, Arm holds, Advanced microdevices, BroadcomApple and more.

In addition, the shift to AI has realigned TSMC’s business over the past two years. While the processors used in smartphones were once its biggest platform, high-performance computing (HPC) — which includes AI — now accounts for more than half of TSMC’s revenue, accounting for 52 percent of sales.

Business is booming. Revenue rose 14% to $20.8 billion in the second quarter, while earnings per share (EPS) of $1.48 rose 30%. Management expects the company’s good fortune to continue.

TSMC forecast second-quarter revenue of $22.8 billion in the middle of its guidance, or about 32% growth. That forecast may turn out to be conservative. In July, the company reported revenue growth of 45% year over year, well above management’s outlook.

The Path to $1 Trillion

TSMC occupies a unique place in the AI ​​ecosystem. As its processors are prized by the biggest players in the space, it occupies the pole position in the rapid adoption of generative AI — which has been making headlines since the beginning of last year. Furthermore, TSMC’s accelerating revenue growth provides the clearest evidence yet that the company is on track. It also suggests that TSMC could easily climb the ranks of trillionaires.

According to Wall Street, TSMC is poised to generate revenue of $87.38 billion in 2024, giving it a forward price-to-sales (P/S) ratio of about 9.5. Assuming its P/S remains constant, TSM would need to grow its revenue to about $210 billion annually to support a $2 trillion market cap.

The company expects growth to pick up to “slightly above mid-20%” for 2024, and Wall Street already seems on board, forecasting revenue growth of 27% and 26% in 2024 and 2025, respectively. If the company can strip away those relatively low benchmarks, it will likely hit a $2 trillion market cap by early 2029. However, given the accelerating adoption of AI, it could cross that threshold even sooner.

Another catalyst for TSMC is the potential of AI-powered smartphones, which could provide the catalyst for an accelerated upgrade cycle. As a leading supplier of smartphone processors, TSMC would be an obvious beneficiary.

Estimates of ongoing AI adoption suggest TSMC’s future is bright. Generative AI is expected to add between $2.6 trillion and $4.4 trillion to the global economy annually over the next 10 years, according to global management consultancy McKinsey & Company. Even that could turn out to be conservative, as estimates continue to rise as new applications for AI are discovered.

Finally, at 28 times earnings, TSMC’s valuation is attractive, giving investors a compelling way to invest in the paradigm shift represented by AI.