Artificial intelligence (AI) has become very popular in the last few years and has seen its adoption grow at a dramatic pace. This has accelerated the sales, profits and resulting market value of some of the world’s best-known companies. Indeed, six of the seven most valuable companies in the world areMagnificent Seven“A group of companies with inexorable ties to artificial intelligence.

At the top of the list are four of the world’s leading developers of AI-centric technology. Apple It is at the top of the list with $3.4 trillion. Nvidia, MicrosoftAnd Alphabet We complete the quartet with market values ​​of $3.2 trillion, $3 trillion and $2.16 trillion, respectively.

With a market cap of approximately $977 billion (as of this writing), it might seem a little premature to predict this. Taiwan Semiconductor Manufacturing (TSM -2.03%)Often referred to as TSMC, the company will soon be eligible for membership in this exclusive fraternity, but the company has all the trappings of success. Adoption of AI continues to grow, and advanced semiconductors that support these complex algorithms have caused demand to explode. TSMC, the world’s largest foundry, is the world’s largest provider of these next-generation processors, so its ascent to this prestigious club seems inevitable.

Image source: Getty Images.

One side of chips

TSMC has been a leading supplier of semiconductors for more than three decades, but the advent of artificial intelligence has brought the company out of the shadows.

Management describes TSMC as “the world’s largest and best semiconductor foundry,” which explains why it is a key player in the rapid adoption of artificial intelligence. These systems require state-of-the-art semiconductors, which puts TSMC in pole position. It helps demonstrate its advantage, as its client list includes industry leaders like Nvidia. Arm Holders, Advanced Micro Devices, broadcomApple et al.

Additionally, while processors used in smartphones once accounted for the bulk of its wealth, high-performance computing (HPC) and artificial intelligence now represent 51% of TSMC’s revenue.

The results are illuminating. Revenue rose 36% year over year to $23.5 billion in the third quarter, while earnings per share (EPS) rose 54% at $1.94. Management expects the company’s stellar growth to continue, with Q4 revenue rising by $26.5 billion, or approximately 35%, at the midpoint of its guidance. This estimate may be conservative. In September, the company reported that its revenue was up 40% year over year; This was well ahead of management’s prediction.

Finally, TSMC produces an estimated 90% of the world’s most advanced semiconductors, which will likely continue to fuel its AI-centric growth.

The path to $1 trillion

As the world’s largest semiconductor foundry, TSMC has a critical role in the advancement of artificial intelligence. None of its competitors can match its technological advantages in producing the world’s most in-demand AI processors. Additionally, the company’s accelerating revenue growth helps reveal the opportunity ahead. This also shows that TSMC will become a multitrillionaire.

According to Wall Street, TSMC is poised to generate $89.41 billion in revenue in 2024. price-to-sales (P/S) ratio roughly 10.9. Assuming P/S remains constant, TSMC would need to grow revenue to approximately $183 billion annually to support its $2 trillion market cap.

The company’s outlook calls for roughly 29% full-year growth in 2024, and Wall Street agrees; Analysts expect revenue growth of 29% and 26% in 2024 and 2025, respectively. If the company can overcome these hurdles, it will likely reach a market cap of $2 trillion by the beginning of 2028. But the rapid adoption of artificial intelligence suggests this could happen even sooner. Additionally, the ongoing recovery in the smartphone industry will also benefit TSMC.

Generative AI is expected to contribute between $2.6 trillion and $4.4 trillion annually to the global economy over the next decade, according to global management consulting firm McKinsey & Company. But estimates of the impact of AI continue to grow as new use cases emerge.

Finally, at 30x earnings, TSMC is attractively priced, especially when viewed in light of its ongoing opportunity.