Nvidia and Microsoft are often considered two of the best long-term plays on the booming artificial intelligence (AI) market. Nvidia's data center GPUs are essential for processing advanced AI tasks, and Microsoft is the top backer of OpenAI, the red-hot AI start-up that created ChatGPT and DALL-E.
Yet Nvidia and Microsoft already have market caps of $1.1 trillion and $2.5 trillion, respectively. Both trillion-dollar stocks could keep climbing as the AI market expands, but investors who are looking for bigger gains might prefer the stocks that haven't joined the 12-zero club yet.
I believe these three AI-oriented stocks -- Taiwan Semiconductor Manufacturiung (TSM +1.45%), Adobe (ADBE 3.61%), and Salesforce (CRM 6.23%) -- could all easily hit the $1 trillion valuation mark by 2035. Let's find out a bit more about these three growth stocks.
Image source: Getty Images.
1. Taiwan Semiconductor Manufacturing
TSMC, the world's largest and most advanced contract chipmaker, manufactures Nvidia's most advanced gaming and data center GPUs. It also produces a broad range of chips for other fabless chipmakers, including Advanced Micro Devices, Apple, and Qualcomm.
NYSE: TSM
Key Data Points
TSMC remains one to two chip generations ahead of its closest competitors -- Samsung, Intel, and China's SMIC -- because it was the first to ramp up its purchases of ASML's extreme ultraviolet lithography systems. Those massive systems, which cost about $200 million apiece, enable foundries to produce the world's smallest and densest chips.
TSMC is a linchpin of the global semiconductor market, so the secular expansion of the AI market should continuously drive more orders of advanced chips to its foundries. The bears will claim it's too exposed to a potential military conflict between Taiwan and mainland China, but that worst-case scenario would likely crush the entire market along with TSMC.
TSMC currently has a market cap of about $470 billion, but it has an easy path toward joining the $1 trillion club. Even if it grows at a compound annual growth rate (CAGR) of just 10% from 2022 to 2035, its annual revenue would more than triple from $76 billion to $265 billion. Therefore, it could be worth much more than $1 trillion in 12 years.
2. Adobe
Adobe produces industry-standard digital media tools like Photoshop, Premiere Pro, and Illustrator. Over the past decade, it transformed those desktop applications into cloud-based services to lock in its users. It also expanded that ecosystem with additional cloud services for sales, marketing, and e-commerce purposes.
NASDAQ: ADBE
Key Data Points
Adobe might not initially seem like an AI play, but it launched an AI and machine learning framework called Adobe Sensei seven years ago. That platform worked behind the scenes to accelerate some of its cloud-based services. Earlier this year, it launched Firefly, a generative AI tool for creating images, videos, and digital models from scratch through text-based prompts on the Creative Cloud. It can also be used to accelerate its Document Cloud, Experience Cloud, and Adobe Express workflows.
Those upgrades suggest Adobe will transform its ecosystem again -- as it did with its cloud-based migration in the past -- with AI services. That evolution could make it easier for its existing users to create AI-generated content.
If Adobe grows at a modest CAGR of 11% from 2022 to 2035, it could quadruple its annual revenue from $18 billion to $72 billion. If its valuations hold steady, its market cap could grow from $250 billion today to over $1 trillion.
3. Salesforce
Like Adobe, Salesforce is often considered a cloud play instead of an AI one. It owns the world's largest cloud-based customer relationship management (CRM) platform, and it also provides sales, marketing, analytics, and collaboration services.
NYSE: CRM
Key Data Points
But to process all of that data, Salesforce has been adding a lot of AI tools to its ecosystem. It launched Einstein -- an AI-powered predictive analytics service for its sales, service, and marketing clouds -- seven years ago. It also recently rolled out its AI Cloud, which extends Einstein's reach with a new "GPT Trust Layer" for auto-generating personalized emails, chat replies, case summaries, and even code for its clients.
Salesforce's gradual integration of those AI tools into its CRM ecosystem could help it stay ahead of its smaller CRM rivals like Microsoft, which has already been integrating OpenAI's ChatGPT into its cloud-based services. It could also lock in its existing customers and ensure that it doesn't miss the seismic technological shift toward AI services.
Salesforce currently has a market cap of about $220 billion. If it maintains a CAGR of 14% over the next 12 years, its annual revenue could rise from $31 billion in fiscal 2023, which ended in January, to $150 billion in fiscal 2035. That near-fivefold growth could easily propel its market cap past the 12-zero mark.
