Semiconductors have become a cornerstone of modern technology, significantly contributing to the success of companies within the sector. Currently, there are 12 companies worldwide valued at $1 trillion or more, with only three achieving the prestigious $3 trillion mark: Nvidia at $4.4 trillion, Apple at $3.7 trillion, and Alphabet also at $3.7 trillion. Analysts see Taiwan Semiconductor Manufacturing Company (TSMC) as a strong candidate to join this elite group.
TSMC, recognized as the world’s largest and most distinguished semiconductor foundry, has a current market capitalization of $1.9 trillion. The company plays a pivotal role in the booming artificial intelligence (AI) sector and the expansion of data centers, contributing to its impressive financial performance. Investors considering TSMC at this juncture could see potential returns of 58% if the company achieves membership in the $3 trillion club.
Recognized as the most advanced chip foundry globally, TSMC controls a staggering 71% of the global chip market, producing over 90% of cutting-edge semiconductors. This dominant position enables TSMC to capitalize on the ongoing surge in demand for advanced chips, particularly for AI, data centers, and high-performance computing, which now account for 55% of its revenue—supplanting smartphone chips, which historically generated most of the company’s income.
Financial results from TSMC reflect its rapid growth. In the fourth quarter, the company reported revenues of $33.7 billion, marking a 26% increase year-over-year and a 2% sequential growth. Earnings per American Depository Share soared by 35%, reaching $3.14. Notably, TSMC’s gross margin improved to 59.9%, while its operating margin rose to 50.8%. These expanding margins suggest that TSMC is gaining leverage as it scales its operations.
Management is optimistic about continued growth, forecasting first-quarter revenue of $35.2 billion, representing a robust 38% year-over-year increase. As of now, TSMC’s stock is priced at around $366, dabbing into an intriguing range of trading activity with a market cap of $1.9 trillion.
The company is uniquely positioned to thrive amidst industry shifts, as many of the largest tech firms count TSMC among their suppliers. Wall Street analysts are predicting steady revenue growth for TSMC, estimating figures of $157.8 billion by 2026, which would reflect a forward price-to-sales (P/S) ratio of approximately 12. For TSMC to reach a $3 trillion valuation, it would need to generate around $250 billion in annual revenue. Analysts project revenues of $193.9 billion for 2027 and $232.8 billion for 2028, indicating a path toward potentially achieving this valuation by 2029.
Furthermore, demand for high-end semiconductors is expected to soar, with annual sales projected to approach $1 trillion by 2026, as outlined in a report from McKinsey & Company. TSMC is well-positioned to benefit from these industry tailwinds, riding the wave of growing demand for its advanced process technologies.
Despite its recent market successes, TSMC stock trades at just 24 times forward earnings, suggesting a favorable entry point for potential investors. The overwhelming growth in the semiconductor sector and TSMC’s commanding market position render it an attractive investment opportunity.
