tesla(NASDAQ:TSLA) It is currently the eighth largest company in the world with a market capitalization of just over $1.05 trillion at the time of writing.
The stock underperformed S&P 500 for most of 2024, but has risen almost 50% in the last month. The US election results have helped boost Tesla’s share price, thanks to the belief that CEO Elon Musk’s close relationship with President-elect Donald Trump could benefit the electric vehicle (EV) maker during the new administration.
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However, Tesla’s recent financial performance has been less than impressive, as you can see below.
YCharts data.
Tesla stock’s underperformance through most of 2024 can be attributed to growing competition that is driving down its delivery numbers, as well as the company’s inability to impress investors with the recent unveiling of the Cybercab. Additionally, Tesla’s earnings are expected to rise at just over 4% annually over the next five years, according to analyst consensus, suggesting the company’s growth may remain bumpy going forward.
With these challenging prospects, it will not be surprising to see Tesla overtaken on the list of the world’s largest companies. Specifically, Semiconductor manufacturing in Taiwan(NYSE: TSM)popularly known as TSMC, and Broadcom(NASDAQ:AVGO) They are hot on Tesla’s heels. Both companies are expected to enjoy strong growth also due to unprecedented demand for their chips.
Here’s a closer look at why these two semiconductor stocks may surpass Tesla in market cap over the next five years.
TSMC is the 10th largest company in the world with a market capitalization of around $995 billion at the time of writing. It is not far behind Tesla thanks to its position as a leader in the semiconductor foundry industry with a 62% market share, according to Counterpoint Research. He has a huge advantage over second place. Samsungwhich has a 13% foundry market share.
This allows TSMC to take full advantage of the secular growth of the semiconductor market, driven by growing demand for artificial intelligence (AI) applications. From smartphones to personal computers (PCs) to data centers, AI is positively impacting multiple verticals, which bodes well for TSMC as it makes chips for all the leading players serving these sectors.
Of NVIDIA to Apple to amd to Qualcommall major fabless chip makers use TSMC manufacturing plants for manufacturing their chips. It’s no surprise that TSMC’s growth has spiked noticeably in 2024. The Taiwan-based company’s revenue in the first 10 months of 2024 increased 31% year-over-year.
The company forecasts a 30% increase in revenue in full-year 2024 to $90 billion, which would be a solid improvement over the 9% decline it witnessed last year. More importantly, the revenue forecast for the next few years has also increased and the company is expected to maintain revenue growth of around 20%.
YCharts data.
Even better, analysts expect this growth to flow into the bottom line as profits grow at a 26% annual rate over the next five years.
Meanwhile, the stock trades at 34 times earnings, a steep discount to Tesla’s 90 earnings multiple. Investors looking to add a tech stock to their portfolios should consider TSMC; It may not be long before the company overtakes Tesla with a higher price. market capitalization.
Like TSMC, Broadcom is also taking advantage of the growing demand for AI chips. Broadcom specializes in making custom chips, known as application-specific integrated circuits (ASICs), and has been ranked as the second-largest AI chip company after Nvidia.
In the third quarter of fiscal 2024 (ending August 4), sales of the company’s custom AI chips increased an impressive 3.5 times from the prior-year period. That trend can be expected to continue as Broadcom is reportedly the leading player in the custom AI chip market with an estimated 55% to 60% share, according to JPMorgan.
The investment bank believes Broadcom has a $20 billion to $30 billion revenue opportunity in custom AI chips, which could grow at a 20% annual rate in the future. The company has already acquired key clients such as Metaplatforms and Alphabetand a recent Reuters report claims that even OpenAI is looking to build an in-house chip with the help of Broadcom.
Broadcom’s AI opportunity isn’t just limited to custom chips. Its networking business has also received a good boost thanks to the increasing deployment of AI data centers with fast connection needs. The company’s networking revenue increased an impressive 43% year over year in the fiscal third quarter, driven primarily by the increasing deployment of AI clusters by hyperscale cloud service providers.
Thanks to these strong tailwinds, it’s easy to see why Broadcom’s earnings are expected to grow at an annual rate of 20% over the next five years. That’s well above the growth Tesla is expected to generate over a similar period. Given that Broadcom has a market cap of $813 billion, it is only 27% away from matching Tesla’s current market cap. Broadcom is already the 11th largest company in the world, just behind TSMC.
And like TSMC, Broadcom appears poised to overtake Tesla in the next five years, considering its stronger profit growth and strong position in the AI chip market.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds and recommends Advanced Micro Devices, Alphabet, Apple, JPMorgan Chase, Meta Platforms, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Prediction: These two stocks will be worth more than Tesla in the next 5 years originally posted by The Motley Fool
