If semiconductor industry leaders can be believed, global chip sales are headed toward $1 trillion a year by 2030 -- up from about $600 billion expected in 2022. That would represent an annual compound growth rate of 6.6% if the $1 trillion milepost is reached in 2030.

Taiwan Semiconductor Manufacturing (TSM 2.84%) is the leader in chipmaking, boasting a 26% market share (when excluding memory chips). Despite that rosy long-term outlook, it's been tough going for the stock as investors fret over a slowdown in consumer electronics sales and the U.S. imposing new export bans on chip sales to China. Share prices of TSMC are down a whopping 52% from all-time highs as of this writing.

Can this stock resume its climb and reach a $1 trillion valuation by the end of this decade? 

More than just a minor setback

TSMC was well on its way to reaching a $1 trillion market cap (it was valued at around $740 billion in mid-January), but then the bear market of 2022 struck. After falling over 50%, the company is currently valued at a market cap of $347 billion. Suffice to say it now has quite a way to go to reach the 13-digit club. Could it make its way back to the $1 trillion mark? Let's do a little math. 

After the third-quarter 2022 earnings update, TSMC has hauled in $71.7 billion in revenue over the last reported 12 months. That means the stock trades for about 4.6 times trailing 12-month sales. Free cash flow was $16.3 billion using exchange rates as of Oct. 13, which means shares trade for 20 times trailing 12-month free cash flow.

TSMC is no ordinary chipmaker. It focuses on high-end chips with its relentless investment in manufacturing technology. It actually expects annual average revenue growth of 15% to 20% from 2021 through 2026, and to deliver even higher profitability returns -- far higher than the implied 6.6% industry average annual growth rate assuming global chip sales reach $1 trillion in 2030.

Let's assume TSMC can grow its revenue at an average of 15% annual growth for the next four years (2023 through 2026), the company maintains its same level of profitability, and valuation metrics remain unchanged from where they are currently. By 2026, that would give TSMC a market cap of about $580 billion.

If that pans out, TSMC would actually need to close out the remainder of the decade (2027 to 2030) growing revenue at an annual average of about 14.5%, again assuming profitability and valuation metrics remain unchanged. That would be quite the eight-year run for a chip manufacturer to pull off, but TSMC could do it. It has averaged 17.5% annual revenue growth since it went public in 1994.

Some risks to keep in mind

There are going to be some potholes in TSMC's journey, though. Through the first nine months of 2022, revenue is up 43% year over year (excluding currency exchange rates). Net profit margins were also at a sky-high 46% in Q3 2022. A slowdown in smartphone demand is going to bring this growth rate down sharply, especially through the first half of 2023. Then there's the U.S. ban on sales of high-end data center and AI chips to China, which the government of Taiwan says it will comply with. That also casts some doubt on TSMC's growth trajectory and profit margins going forward.

In the Q3 2022 earnings call, management said these new chip export bans appear to be "minimal and manageable," but a long-term impact on the business remains unknown. For now, TSMC's main concern is working through the inventory oversupply in consumer electronics for the next few quarters. 

But as of right now, Taiwan Semiconductor's longer-term outlook remains unchanged. The company is focused on continuously improving its manufacturing technology to maintain its lead and to capitalize on growth trends in the semiconductor industry. Further expansion outside of Asia is also on the table. A preliminary evaluation on building a fab in Europe is reportedly underway, plus new fabs are being built in the U.S., which could help offset business uncertainty from increased geopolitical tensions between the West and China. Taiwan Semiconductor is poised to be a top manufacturing stock for the next decade -- whether it hits that $1 trillion mark or not.