Tesla(NASDAQ: TSLA) is currently the eighth-largest company on this planet with a market cap of just over $1.05 trillion as of this writing.
The stock underperformed the S&P 500 for the vast majority of 2024, nevertheless it has jumped nearly 50% prior to now month. The outcomes of the U.S. elections have helped drive Tesla’s share price higher, due to the assumption that CEO Elon Musk’s close relationship with President-Elect Donald Trump may benefit the electrical vehicle (EV) manufacturer throughout the recent administration.
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Nevertheless, Tesla’s recent financial performance has been lower than impressive as you’ll be able to see below.
Tesla stock’s underperformance through most of 2024 could be attributed to growing competition that is bringing down its delivery numbers, in addition to the corporate’s failure to impress investors with the recent unveiling of the Cybercab. Furthermore, Tesla’s earnings are expected to extend at just over 4% annually in the subsequent five years, in response to the analyst consensus, suggesting the corporate’s growth may remain bumpy going forward.
With this difficult outlook, it won’t be surprising to see Tesla overtaken within the list of world’s largest firms. Specifically, Taiwan Semiconductor Manufacturing(NYSE: TSM), popularly referred to as TSMC, and Broadcom(NASDAQ: AVGO) are fast on Tesla’s heels. Each firms are expected to enjoy strong growth because of unprecedented demand for his or her chips too.
Here’s a better take a look at the the explanation why these two semiconductor stocks may have the option to surpass Tesla by market cap over the subsequent five years.
TSMC is the world’s tenth largest company with a market cap of around $995 billion as of this writing. It is not far behind Tesla due to its position because the leading player within the semiconductor foundry industry with a market share of 62%, in response to Counterpoint Research. It enjoys a large lead over second-place Samsung, which has a foundry market share of 13%.
This enables TSMC to take advantage of the secular growth of the semiconductor market, which is being driven by the growing demand for artificial intelligence (AI) applications. From smartphones to private computers (PCs) to data centers, AI is positively impacting multiple verticals, which bodes well for TSMC because it manufactures chips for all of the leading players serving these sectors.
From Nvidia to Apple to AMD to Qualcomm, all the foremost fabless chipmakers use TSMC’s fabrication plants for his or her chip manufacturing. Not surprisingly, TSMC’s growth has shot up remarkably in 2024. The Taiwan-based company’s revenue in the primary 10 months of 2024 increased 31% 12 months over 12 months.
The corporate is forecasting a 30% increase in revenue in full-year 2024 to $90 billion, which can be a solid improvement over the 9% decline it witnessed last 12 months. More importantly, the revenue forecast for the subsequent couple of years has been rising as well with the corporate expected to keep up top-line growth of around 20%.
Even higher, analysts expect this growth to flow to the underside line as earnings increase at an annual rate of 26% over the subsequent five years.
Meanwhile, the stock is trading at 34 times earnings, a giant discount to Tesla’s earnings multiple of 90. Investors trying to add a tech stock to their portfolios should consider TSMC — it will not be long before the corporate surges past Tesla with the next market cap.
Identical to TSMC, Broadcom can also be profiting from growing demand for AI chips. Broadcom focuses on making custom chips, referred to as application-specific integrated circuits (ASICs), and it has been billed because the second-most necessary AI chip company after Nvidia.
Within the fiscal 2024 third quarter (ended Aug. 4), sales of the corporate’s custom AI chips increased a formidable 3.5x from the year-ago period. That trend could be expected to proceed as Broadcom is reportedly the leading player within the custom AI chip market with an estimated share of 55% to 60%, in response to JPMorgan.
The investment bank believes Broadcom has a revenue opportunity of $20 billion to $30 billion in custom AI chips, which could grow at an annual rate of 20% in the longer term. The corporate has already landed key customers comparable to Meta Platforms and Alphabet, and a recent report from Reuters states that even OpenAI is trying to construct an in-house chip with Broadcom’s help.
Broadcom’s AI opportunity is not limited to only custom chips. Its networking business has also received a pleasant shot within the arm due to growing deployment of AI data centers with fast connection needs. The corporate’s networking revenue increased a formidable 43% 12 months over 12 months in fiscal Q3, driven mainly by the growing deployment of AI clusters by hyperscale cloud service providers.
Because of such solid tailwinds, it is straightforward to see why Broadcom’s earnings are forecast to extend at an annual rate of 20% for the subsequent five years. That is well above the expansion that Tesla is anticipated to deliver over an analogous period. Provided that Broadcom has a market cap of $813 billion, it’s just 27% away from matching Tesla’s current market cap. Broadcom is already the Eleventh-largest company on this planet, putting it just behind TSMC.
And like TSMC, Broadcom seems poised to outgrow Tesla inside the subsequent five years, considering its stronger earnings growth and its robust position within the AI chip market.
When our analyst team has a stock tip, it may well pay to listen. In any case, Stock Advisor’s total average return is 875% — a market-crushing outperformance in comparison with 172% for the S&P 500.*
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JPMorgan Chase is an promoting partner of Motley Idiot Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Advanced Micro Devices, Alphabet, Apple, JPMorgan Chase, Meta Platforms, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Idiot recommends Broadcom. The Motley Idiot has a disclosure policy.
