The "Magnificent Seven" was a phrase coined by CNBC's Jim Cramer to group the most dominant stocks in the market. The seven stocks are:
- Microsoft
- Apple
- Nvidia
- Alphabet
- Amazon
- Meta Platforms
- Tesla
While this is a solid list, I believe it leaves out one incredibly important business. In fact, if this company didn't exist, these seven companies wouldn't look the same.
So, instead of the Magnificent Seven, I'm proposing the Incredible Eight, which adds Taiwan Semiconductor (TSM 0.84%) to the cohort.
Taiwan Semiconductor's product innovation has kept it on top of its industry
With a $900 billion market cap, TSMC is actually the seventh-largest company listed on U.S. exchanges -- larger than Tesla's $585 billion.
Taiwan Semiconductor is a chip foundry, meaning companies design chips and then outsource the manufacturing to Taiwan Semiconductor, which has the expertise to create them. The company is the market leader in this space and has industry-leading 3 nanometer (nm) chip technology that allows it to manufacture the most powerful chips possible right now. Additionally, TSMC has a culture of continuous innovation, and the next generation of 2nm chips is slated to launch sometime in 2025.
NYSE: TSM
Key Data Points
Although TSMC doesn't name all its clients, every member of the Magnificent Seven is either a direct or indirect customer. That's a great position to be in, and a TSMC investment gives investors a chance to benefit from all technological innovations made by the original Magnificent Seven.
And multiple catalysts are in line to boost its business.
TSMC is about to experience two significant tailwinds
In Apple's latest announcement, it launched Apple Intelligence, its take on artificial intelligence (AI). In this announcement was the kicker that only the latest generation of iPhones and newer will have access to this technology, so consumers will have to upgrade to gain access to this feature. Over the past three years, Apple essentially made up a quarter of TSMC's revenue, so if this ignites an upgrade cycle, TSMC will be a huge beneficiary.
This is a big relief, as 38% of TSMC's revenue in the first quarter came from the smartphone segment, which saw its quarter-over-quarter revenue figure drop by 16%. Given how important smartphones are to TSMC's business, it's critical that this area turns around.
However, another division, AI, is also starting to shine. Management projects a 50% compound annual growth rate (CAGR) for the next five years with AI-related hardware. After that catalyst is complete, it projects it will make up around 20% of total revenue.
That's massive growth from a segment that is just emerging, and it's critical to get in before the lion's share of that growth occurs.
Both factors give credence to management's long-term goal of growing revenue at a 15% to 20% CAGR for the foreseeable future.
It's rare to find a company that consistently delivers that kind of growth over the long term, but Taiwan Semiconductor is well-positioned to do it. As a result, I think it's one of the best stocks to buy now and hold for the long term.
One slight caveat to this pitch is that Taiwan Semiconductor's stock isn't the cheapest at 28 times forward earnings.
TSM PE Ratio (Forward) data by YCharts
However, considering that other Magnificent Seven members like Apple, Microsoft, Amazon, Nvidia, and Tesla trade at much higher multiples, it's still a fair price to pay.
Taiwan Semiconductor's long-term trajectory is just too good to ignore, and every investor should consider owning some shares. Although I don't know if the Incredible Eight will become a trend, I think adding Taiwan Semiconductor to this cohort makes sense.
