Prediction: 2 stocks that will be worth more than Nvidia in 5 years

Nvidia it hit a $3 trillion market cap earlier this year, an impressive feat considering it was about a tenth of that size two years ago. The emergence of generative artificial intelligence (AI) has drawn investors to the stock on the back of its lead in graphics processing units, which are central to AI.

However, slowing growth could cause Nvidia to fall due to its massive valuation. Such a decline would open the door for other stocks to hit higher market caps five years from now. Given the trends in the tech sector, these two stocks could definitely outperform it.

Taiwan Semiconductor

My choice of Taiwan Semiconductor Manufacturing (TSM 0.94%) might raise some eyebrows given the relationship with Nvidia and its peers. As a leading manufacturer of advanced semiconductors, TSMC (as it is known for short) plays an indispensable role in bringing AI to the world.

Unfortunately for TSMC shareholders, so far it hasn’t benefited from the premiums that have helped its customers like Nvidia. The reasons are not clear, although fabulous companies typically did not trade at high valuations. TSMC also operates in the geopolitically contested region of Taiwan, prompting some investors to avoid it for fear of an invasion of the island.

However, the market may not have properly priced this risk. First, China also depends on TSMC chips, which should make an invasion less likely. And since TSMC makes chips in Taiwan, it stands to reason that its biggest customers would also face this risk, however the market seems to overlook such possibilities in the case of Nvidia.

Moreover, if investors start discounting Nvidia, valuations could turn in TSMC’s favor. The former is currently trading at a price-to-sales (P/S) ratio of 31, well above TSMC’s multiple of 12.

However, TSMC also makes AI chips for companies like Advanced microdevices and Qualcomm. Therefore, even if Nvidia remains dominant, this competition could affect its prices, leading to lower revenues and multiple compression.

In contrast, TSMC’s market cap is around $900 billion. Therefore, a doubling of the P/S ratio and a halving of Nvidia would give TSMC a higher market cap. That doesn’t take into account the revenue growth both companies should see over the next five years. However, it does show how Nvidia might not be as far from TSMC as it seems.

Once Nvidia feels more of the effects of the likely unsustainable valuation, TSMC could easily be well-positioned to move ahead of its high-profile client.

adze

Investors are likely familiar with the electric vehicle (EV) maker. adze (TSLA 3.91%) the best for its cars or possibly battery technology. At a market cap of $835 billion, it is currently the smallest of the “Magnificent Seven” stocks.

Tesla’s Solar Roof and Powerwall have potential for growth, but that product category accounted for less than 12% of revenue in the second quarter of 2024. And the more than 830,000 vehicles the company sold in the first half of 2024 accounted for 7 % decreases from 2023.

Its savior could be Autopilot, its self-driving technology that continues to make significant strides. It still requires human supervision for now, but Tesla and its backers plan to turn it into a profitable subscription business once it achieves full autonomy.

This potential is so strong that Cathie Wood of ARK Invest believes that this technology will account for about 90% of earnings by 2029. According to her calculations, this would take Tesla’s stock price to $2,600 per share, an increase of about ten times that would take the market cap to $8.4 trillion!

In such a scenario, valuation comparisons between Tesla and Nvidia are likely to be irrelevant — the electric vehicle maker’s P/E of 73 is higher than the chipmaker’s 57 earnings multiple. Still, even if Tesla stock were to retreat to Nvidia’s P/E, a tenfold increase would take the market cap to $6.5 trillion, far exceeding Nvidia’s current size.

Finally, as previously mentioned, Nvidia may experience multiple compression as competitors eat away at some of its market share in the AI ​​chip market. Tesla’s self-driving opportunity hasn’t really taken off, so even partial success could supercharge the stock enough to overtake Nvidia.