The semiconductor industry's long-term outlook is extremely promising, and top players in the space will likely deliver incredible returns for shareholders. Just take a look at the stock performance for Nvidia, one of the world's leading high-performance chip companies.
Thanks to artificial-intelligence (AI) applications powering big growth for the company's data-center business, Nvidia's market cap is now in the range of $1 trillion. And there's a good chance that it won't be the only chip leader with a valuation above that level by the time this decade draws to a close.
If you're looking for top semiconductor investments, read on as two Motley Fool contributors discuss chip companies that could cross $1 trillion in market cap by 2030.
AMD could ride powerful tailwinds to a $1 trillion market cap
Parkev Tatevosian: Semiconductor companies are at the forefront of some of the strongest tailwinds driving growth worldwide. The rise of artificial intelligence and the metaverse are requiring ever-more-potent computing power. As of this writing, Advanced Micro Devices (AMD 1.33%) has a market capitalization of $204 billion. Its products compete with industry leaders, feeding increased demand for faster and more cost-effective computers.
AMD market cap, data by YCharts.
In the previous decade, AMD increased its revenue from $5.3 billion to $23.6 billion. If the strong secular tailwinds persist in driving demand higher, revenue could grow even faster between now and 2030. More important, from 2012 to 2022, operating income exploded from $85 million to $1.26 billion. The company has demonstrated excellent economies of scale. In other words, it has the infrastructure to experience profit growth that exceeds revenue growth by a wide margin.
If AMD can approach the explosive profit growth it demonstrated in the last decade, its operating profits could exceed $10 billion by 2030. With profits expanding by nearly 10x, it would not be surprising to see market capitalization multiply by five to eclipse $1 trillion.
It's always a risky proposition to speculate about the future, so investors should take the above numbers as estimates, not certainties. That said, I doubt many investors would be upset if they bought AMD stock today and the market cap grew to $800 billion rather than $1 trillion.
TSMC is top dog in the fabrication space
Keith Noonan: Taiwan Semiconductor Manufacturing (TSM 2.71%), also known as TSMC, sits at the top of the semiconductor-fabrication industry. The company captures roughly 60% of the total global market for contract chip fabrication, and it's responsible for manufacturing more than 90% of the high-performance semiconductors that are at the heart of today's biggest tech trends.
Artificial intelligence, 5G, autonomous vehicles, the Internet of Things, wearable computing -- essentially all of these tech segments depend on chips that come out of TSMC's factories. Even the rise of cloud computing has been powered by high-performance chips and servers at data centers.
TSMC counts both Nvidia and AMD among its list of customers, and other leading chip designers including Apple, Broadcom, and Qualcomm are also key clients. Even Intel, which has substantial fabrication capabilities of its own, relies on the Taiwan-based company for some of its manufacturing needs.
With a market cap of roughly $535 billion, TSMC stock would need to roughly double in order for the company to reach a market cap north of $1 trillion by 2030. But this target appears to be within reach.
TSM PE ratio (forward), data by YCharts. PE = price to earnings.
Even after a recent jump for the company's share price -- spurred by expectations for increased AI-driven demand -- TSMC trades at a reasonable 20 times this year's expected earnings. With the fab leader posting a net income margin of 40.7% last quarter and potentially on the verge of a substantial and prolonged demand spike, it could be poised for very strong earnings growth that powers big gains for its stock.
Chips are at the heart of tech and global economic growth
For investors aiming to benefit from today's emerging technology trends, building positions in top semiconductor companies would be a smart move. Both AMD and TSMC have strong positions, and both stocks stand out as strong pick-and-shovel plays in AI, data centers, and other influential tech movements.
