Technology is ever-changing, and companies must stay on their toes or risk becoming obsolete. Apple (AAPL 0.01%) is flirting with that line, as its artificial intelligence (AI) strategy has largely underperformed and lags behind its peers in this arena. Outside of AI, it has failed to launch any innovative new products recently, which has led to stagnation in growth.
As a result, I wouldn't be surprised to see Apple's valuation decline slightly and be surpassed by companies that are thriving in the age of AI, such as Taiwan Semiconductor (TSM +1.40%) and Broadcom (AVGO +4.69%). Both of these are slated to experience significant growth over the next few years, and that growth could potentially drive them to surpass Apple by 2030.
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Apple could see its valuation drop over the next few years
Apple has a massive head start on both of these companies. Currently, it has a market capitalization of $3.1 trillion, while Broadcom and Taiwan Semiconductor (TSMC) have valuations of $1.3 trillion and $1.2 trillion, respectively. That would require Broadcom and TSMC to nearly triple in value over the next five years, which is a tall task.
However, they may have some help from Apple.
Apple's earnings growth has slowed to a snail's pace over the past few quarters. There's not much growth left for Apple, and the expectation is that Apple will likely not increase earnings per share (EPS) significantly faster than a high-single-digit rate.
AAPL EPS Basic (Quarterly YoY Growth) data by YCharts. EPS = earnings per share. YoY = year over year.
Considering the S&P 500 (^GSPC 0.11%) returns around 10% annually, Apple should likely receive no more than a market premium because the odds of it outperforming the market are slim. However, the stock maintains a significant premium to the broader market, with Apple trading at 32.7 times earnings compared to the market's 24.2 times.
This suggests we may see multiple contractions over the next few years. If Apple were to trade at the same price as the S&P 500, its market capitalization would be approximately 25% lower than it is today -- $2.32 trillion.
That would require Broadcom and Taiwan Semiconductor's stocks only to roughly double, a much more achievable task.
Broadcom and Taiwan Semiconductor are slated to see huge growth
Taiwan Semiconductor is in a unique position within the AI race. It is the leading chip foundry, and many of the AI chips that power the AI race are produced in its facilities. As a result, management has an excellent view into what demand will look like, and it has given a bold projection that its AI-related revenue will increase at a 45% compounded annual growth rate (CAGR) over the next five years. As for the overall growth rate, management projects it will rise at nearly a 20% CAGR.
NYSE: TSM
Key Data Points
A 20% CAGR indicates that TSMC's revenue would rise by about 150%. This could position Taiwan Semiconductor to be neck-and-neck with Apple once its growth is factored in. If the AI race persists for much longer, it could easily surpass Apple around the 2030 mark.
Broadcom has several business units, but its most promising are those related to AI. Its connectivity switches are already being deployed in data centers everywhere to stitch together information that is being run on different pieces of hardware. However, it's most excited about its custom AI accelerators, which are alternatives to graphics processing units (GPUs). These units, which Broadcom calls XPUs, can outperform GPUs when a workload is set up properly, and they are becoming a wildly popular alternative.
NASDAQ: AVGO
Key Data Points
Broadcom sees a massive market for these units and projects that they will have an addressable market of between $60 billion and $90 billion by 2027. Considering Broadcom has generated $57 billion in revenue over the past 12 months, this would indicate massive growth for the company. As a result, I believe Broadcom could surpass Apple in size by 2030.
It won't be an easy road ahead for these two to surpass Apple by 2030. Still, even if they don't meet that aggressive timeline, I think it's nearly guaranteed that they can eventually pass Apple based on their current growth trajectories.
