Thanks to an explosive rally driven, in part, by increased interest in the rise of artificial intelligence (AI) this year, Nvidia has joined the illustrious trillion-dollar valuation club. As it stands right now, the only other public companies trading on U.S. exchanges in that rather exclusive club are Apple, Microsoft, Alphabet, and Amazon. But there are a few other technology companies that are likely to get their own trillion-dollar club membership cards, creating opportunities for investors to profit.
If you're on the hunt for mega-cap stocks that still have big growth potential, read on as some Motley Fool contributors look at a pair of category-leading tech companies that are on track to reach market capitalizations of $1 trillion.
TSMC will continue to lead this essential market
Keith Noonan: Taiwan Semiconductor Manufacturing (TSM +0.08%), or TSMC as it's often called, is the world's leading semiconductor foundry service. When leading chip designers including Nvidia, Apple, and Advanced Micro Devices want their designs manufactured, they turn to TSMC for the service.
With low-end estimates suggesting that total semiconductor industry revenue will at least double this decade, the Taiwan-based foundry leader is poised to benefit from strong demand tailwinds. Even better, the growing need for high-performance chips to power artificial intelligence (AI) applications and data centers presents margin tailwinds for the company's sales mix.
TSMC currently controls more than 60% of the global market for contract foundry services. The company's leading position in chip manufacturing services is actually even more impressive if you take a closer look.
NYSE: TSM
Key Data Points
Samsung stands as the second-largest player in the fab market, but its production output is more concentrated in memory chips. These tend to be relatively low margin when compared to processors, mobile connectivity chips, and other semiconductor categories that TSMC has the edge in.
When it comes to the ultra-high-end chips that are used to power AI and other performance-intensive applications, TSMC is actually commanding more than 90% of the contract fabrication market.
Today, it has a market cap of roughly $543.5 billion, but its stock price remains down roughly 25.5% from its high. The company reached a market capitalization of roughly $730 billion early last year, and there's a good chance it can rebound to that level and continue climbing from there.
TSM PE Ratio (forward) data by YCharts. PE = price to earnings.
With TSMC on track to benefit from some powerful sales and profit tailwinds and still trading at around 21 times this year's expected earnings, the stock still has plenty of upside. Shares will undoubtedly see some swings in conjunction with market and industry trends, but it wouldn't be surprising to see the company join the trillion-dollar club within the next five years.
Meta Platforms is back on the rise
Parkev Tatevosian: One excellent growth stock that could soon join the $1 trillion market cap group is Meta Platforms (META 4.02%). The company formerly known as Facebook eclipsed the milestone once before. But headwinds brought its valuation lower, including rising competition from TikTok, privacy-policy changes at Apple, and fears of a recession.
Still, the company boasts billions of daily active users on its apps, has proved it can grow profits, and it trades at a relatively inexpensive valuation.
NASDAQ: META
Key Data Points
As of March 31, Meta Platforms had 3 billion daily active users, a 5% increase from the same time the year prior. Given its recent launch of a new app called Threads to rival Twitter, it would not be surprising if that figure is much higher the next time it provides investors an update. The company's apps are free to join, and Meta makes much of its revenue by selling advertisements that get viewed by its users.
Its revenue model has been quite lucrative. Over the previous decade, Meta's operating income exploded, going from $2.8 billion to $28.9 billion. Even if its growth rate in profits slows considerably, the massive sum is enough to deliver substantial returns to shareholders.
That's especially true because the stock is not trading at a growth-dependent expensive valuation. At a forward price-to-earnings (P/E) ratio of 21.6, Meta's stock is fairly priced. The primary path of bridging the gap to a $1 trillion valuation from the current $800 billion is a combination of increases in earnings and expansion of its P/E.
TSMC and Meta have trillion-dollar potential
In addition to currently trading at P/E multiples that have room for expansion, both TSMC and Meta Platforms are poised to facilitate and benefit from trends that could push profits significantly above current levels.
For investors looking to benefit from the ongoing rise of mega-cap stocks, these tech leaders stand out as top candidates and have good chances of being the next companies to hit the trillion-dollar valuation mark.
