Although the members of the $1 trillion stock club can fluctuate from day to day, it's currently quite full, with 11 stocks being members of this exclusive club. Two of the latest members to join the club are Taiwan Semiconductor (NYSE: TSM) and Broadcom (NASDAQ: AVGO), although they're not exactly new members.
Both companies fell out of the $1 trillion valuation with the latest market dip, but have since regained entry to this group as of the time of writing. However, this is just the beginning for both stocks, as plenty of growth trends could push them even higher (maybe even into the $2 trillion range).
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Taiwan Semiconductor
Taiwan Semiconductor manufactures many of the chips that go into advanced technological devices. Whether it's an iPhone or an Nvidia (NASDAQ: NVDA) GPU, TSMC makes the chips that go into these devices.
While it has the best chip technology currently available (3-nanometer chips), it's slated to launch 2nm chips later this year and 1.6nm chips in 2026. The smaller the chip node, the more transistors it can pack onto a chip, which leads to more powerful designs. This continuous improvement culture is why many companies have chosen to partner with Taiwan Semi, and it is generally an irreplaceable supplier to its clients.
Taiwan Semiconductor is also expected to grow massively over the next few years. Management projects AI-related revenue to grow at a 45% compound annual growth rate (CAGR) over the next five years and overall growth to increase at nearly a 20% CAGR. If those assumptions come true, TSMC will be a must-own stock over the next five years.
This projection also isn't a wild guess; there are real numbers to back it up. Many of TSMC's clients place chip orders years in advance, so the company often has an idea of what production looks like years out. For example, TSMC has already sold out its chip production capacity at its Arizona facility through 2027. So, this growth projection isn't far-fetched and could lead to significant outperformance by the stock.
Taiwan Semi trades for 21 times forward earnings, which is a market-average multiple, meaning investors don't have to overpay to buy shares of TSMC stock.
Although Taiwan Semi just joined the $1 trillion club, it's well on its way to potentially becoming a $2 trillion club member in under five years.
Broadcom
If you've followed the AI space for any period, it's clear that Nvidia is an important company. Its graphics processing units (GPUs) are the computing muscle behind many AI models. However, GPUs are meant to be able to handle many types of workloads, so they aren't specialized to one particular task. Furthermore, Nvidia's GPUs are quite expensive, and they make massive profits from each one sold.
This opens the door for a new type of computing unit, one designed and tailored for use by the end-user, which also cuts Nvidia out of the profit picture. Broadcom is a key player in the custom AI accelerator market, which it calls XPUs.
XPUs are meant to run workloads configured in a particular manner to optimize performance. As a result, XPUs can outperform GPUs for AI training performance. Broadcom has partnered with several of the AI hyperscalers to help them design their XPUs, and three clients currently deploy these products. Broadcom estimates that the addressable market for these three will be between $60 billion and $90 billion by fiscal year 2027. Additionally, two other clients are slated to launch their XPUs by the end of this year, and two additional companies selected Broadcom as a partner to design their XPUs.
Considering that XPUs and networking switches only produced $12.2 billion in revenue in fiscal year 2024, this could be a monster growth arm for Broadcom for years to come.
However, you'll have to pay a premium to own Broadcom's stock, as it's not as cheap as it was just a month ago.
At 35 times forward earnings, Broadcom's stock isn't the cheapest, but it reflects the growth the company is expected to deliver over the next few years.
Broadcom should have a strong next few years, and if its XPU division grows like management expects, it could easily rise to a valuation of over $2 trillion.
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Keithen Drury has positions in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
