1 Brilliant Growth Stock to Buy Before It Joins Nvidia, Apple, and Alphabet in the $3 Trillion Club

Key Points

• High-performance chips underpin all forms of technology, and demand has surged in recent years.

• Taiwan Semiconductor is the market leader in advanced semiconductors, and its customers include the biggest names in technology.

• Despite its vital role in high-performance computing, AI, and data centers, the stock remains attractively priced.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

There are currently 11 companies with market caps of $1 trillion or more, but only three are members of the distinguished $3 trillion club (as of this writing): Nvidia at $4 trillion, Apple at $3.6 trillion, and Alphabet at $3.3 trillion.

Recent geopolitical developments have roiled the market, but I remain convinced that Taiwan Semiconductor Manufacturing (NYSE: TSM), commonly called TSMC, is poised to join this elite society in the years to come. The company is the world’s largest and most prominent semiconductor foundry, making it a principal beneficiary of the adoption of artificial intelligence (AI) and the resulting data center build-out, which has fueled TSMC’s financial and business results.

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The company has a market capitalization of $1.6 trillion as I write this, which means investors who buy TSMC stock right now could enjoy returns of 83% if it joins the prestigious $3 trillion club.

Image source: Getty Images.

Let the chips fall where they may

TSMC is widely acknowledged as the world’s largest contract chipmaker. While estimates vary, the company has a 71% share of the global chip market and manufactures more than 90% of the most advanced semiconductors. As such, it is positioned to profit from the AI chip boom.

Moreover, TSMC is the most technologically advanced foundry in the world, which is why it produces the lion’s share of next-generation chips for the biggest names in technology, including Apple, Nvidia, Arm Holdings, and Advanced Micro Devices, among others.

TSMC is the world’s biggest producer of advanced processors used for data centers, high-performance computing, and AI — which account for 55% of sales, but it also dominates the market for smartphone chips — which account for 32% of sales.

The numbers tell the tale

TSMC’s fourth quarter results tell a tale of impressive gains. Revenue of $33.7 billion jumped 26% year over year and 2% sequentially, while earnings per American Depository share climbed 35% to $3.14.

Perhaps more telling is the company’s expanding profitability, as TSMC’s gross margin increased 330 basis points to 62.3% and its operating margin improved 500 basis points to 54%. As the company scales its chipmaking business and leverages its existing assets, it expects further margin improvement.

Management’s Q1 outlook calls for revenue of $35.2 billion, up 38%, and operating income of $19.36 billion, up 56%, both at the midpoint of its guidance. This includes a gross profit margin of 64% and an operating profit margin of 55%.

The path to $3 trillion

TSMC is the most obvious pick-and-shovel play to profit from the ongoing adoption of AI. With the largest technology companies as its customers, the company is well-positioned to continue reaping the benefits.

Wall Street expects TSMC to generate revenue of $155.8 billion in 2026, giving it a forward price-to-sales (P/S) ratio of roughly 10. Assuming its P/S ratio remains constant, TSM will need to generate revenue of roughly $284 billion annually to support a $3 trillion market cap.

It’s telling that analysts are forecasting revenue for TSMC of $193.5 billion and $235.4 billion in 2027 and 2028, respectively. If the company achieves those relatively low benchmarks, it will be within striking distance of a $3 trillion market cap as soon as 2029. That said, the company’s growth rate in recent years suggests that outlook may be conservative.

Demand for state-of-the-art chips continues to ratchet higher, with the semiconductor market projected to reach nearly $1.6 trillion in 2030, according to McKinsey & Company. TSMC’s leading-edge process technology is experiencing surging demand, and the company expects those secular tailwinds to continue.

Despite its accelerating growth, TSMC stock trades for just 22 times forward earnings, giving astute investors the opportunity to pick up this industry leader at a bargain.

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Danny Vena, CPA has positions in Alphabet, Apple, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Nvidia, and Taiwan Semiconductor Manufacturing and is short shares of Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.