TSM

Will Taiwan Semiconductor Be a Trillion-Dollar Stock by 2030?

Six tech stocks are worth at least $1 trillion today, in terms of market capitalization. All six are members of the "Magnificent Seven" group of game-changing market darlings that drove the stock market's gains in 2023. There are other ways to measure market footprints, of course -- sorted by assets on the balance sheet, you'd get a very different list of six mega-banks and an insurance-based conglomerate instead.

Chip-making giant Taiwan Semiconductor Manufacturing (NYSE: TSM) is nowhere near the assets-based club of trillion-dollar companies -- but it falls just short of the trillion-dollar benchmark with a $718 billion market cap.

Is Taiwan Semi (also known as TSMC) joining the trillion-dollar elite order anytime soon? Let's see what it would take if I set the goal line at the year 2030.

Measuring the distance to $1 trillion

Past performance is not a guarantee of future returns, but a long history of market-beating success may point to a company with good ideas and a solid management team.

Play around with the time-period selector in the chart above. You'll see Taiwan Semi beating the S&P 500 (SNPINDEX: ^GSPC) index by a country mile over the last three or six months, and the advantage only grows larger in a full-year or five-year comparison.

And what if you stretch the chart to a whole decade, using total returns to account for the impact of reinvested dividends along the way? Well, an S&P 500 index-fund investment of $1,000 would have grown into $6,737 over the last ten years. Taiwan Semi, on the other hand, would have put a cool $31,000 in your pocket over the same period:

^SPX Chart

^SPX data by YCharts

I don't necessarily expect the company to maintain its breakneck growth rate of 18.7% per year over the next six years -- but if it did, TSMC would have a $2.0 trillion market cap in April 2030.

Cool down to the S&P 500's recent compound average growth rate (CAGR) of 10% per annum, and the chip-builder lands at $1.3 trillion. In other words, the company doesn't even have to beat the market's 10-year average returns in order to reach that lofty valuation target in 2030. And if you flip the equation around, you'll find that Taiwan Semi's market cap only needs to increase by about 6% per year. That's a pretty modest goal, even for a mature and very large company.

The underlying growth story

On top of that promising starting position, TSMC is the king of a robust industry. The company's sales accounted for a dominant 61% of the global chip-foundry activity last year, according to Statista. Runner-up Samsung (OTC: SSNL.F) has seen its market share shrink in recent years and Intel's (NASDAQ: INTC) foundry business has barely made a mark yet.

So Taiwan Semi's throne looks quite comfortable. Furthermore, the artificial intelligence (AI) boom that sent those "Magnificent Seven" stocks skyward last year also generated heavy demand for semiconductor manufacturing services. From memory chips to AI accelerators, the chip foundries are essentially running at full capacity and still have a hard time keeping up with the market demand.

TSMC's stock makes sense in the trillion-dollar discussion

Long story short, I'd be shocked if 2030 rolls around without a seat for TSMC at the table for trillion-dollar market caps. The journey to that spot could involve an underwhelming 6% annual return, and TSMC may not beat the overall market in this period, but the stock does look likely to tick a trillion-dollar valuation off its bucket list.

In fact, it would make sense to see Taiwan Semi included in the next version of the "Magnificent Sevven" list. Given its dominant grip on a global growth industry, the company belongs in any conversation about market-defining giants nowadays. This stock should be on your shortlist for further research, dear reader.

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Anders Bylund has positions in Intel. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. 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.

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