Unraveling the Battle for Market Supremacy between Tesla and Semiconductor Stocks

1. Taiwan Semiconductor Manufacturing

TSMC stands as the world's 10th largest company with a market cap of around $995 billion. Its dominance in the semiconductor foundry industry, boasting a 62% market share according to Counterpoint Research, positions it closely behind Tesla. It holds a massive lead over second-place Samsung, which has a 13% foundry market share. This enables TSMC to capitalize on the secular growth of the semiconductor market driven by the soaring demand for artificial intelligence (AI) applications. From smartphones to personal computers (PCs) to data centers, AI is leaving a positive impact across multiple sectors, boding well for TSMC as it manufactures chips for all the leading players in these domains. For instance, from Nvidia to Apple to AMD to Qualcomm, all major fabless chipmakers rely on TSMC's fabrication plants. In 2024, TSMC's growth has been remarkable. Its revenue in the first 10 months increased by 31% year over year. The company is forecasting a 30% increase in revenue for the full year 2024, reaching $90 billion, which is a significant improvement from the 9% decline witnessed last year. Moreover, the revenue forecast for the next couple of years is on the rise, with the company expected to maintain a top-line growth of around 20%. Analysts even anticipate this growth to translate to the bottom line, with earnings expected to increase at an annual rate of 26% over the next five years. While Tesla's earnings are expected to increase at just over 4% annually in the same period. Currently, the stock is trading at 34 times earnings, a significant discount to Tesla's earnings multiple of 90. Investors seeking to add a tech stock to their portfolios should seriously consider TSMC. It may not be long before the company surpasses Tesla in market cap.

TSMC's position and growth prospects highlight its potential to challenge Tesla's market dominance. Its ability to meet the increasing demand for AI-related chips and its strong foothold in the semiconductor industry make it a formidable competitor. As the world continues to embrace AI, TSMC is well-positioned to capitalize on this trend and potentially overtake Tesla in terms of market value.

2. Broadcom

Similar to TSMC, Broadcom is leveraging the growing demand for AI chips. Specializing in making custom chips, known as application-specific integrated circuits (ASICs), it has been recognized as the second-most important AI chip company after Nvidia. In the fiscal 2024 third quarter (ended Aug. 4), the sales of its custom AI chips witnessed an impressive 3.5x growth from the previous year. This trend is expected to continue as JPMorgan estimates that Broadcom is the leading player in the custom AI chip market with an estimated share of 55% to 60%. The investment bank believes Broadcom has a revenue opportunity of $20 billion to $30 billion in custom AI chips, which could grow at an annual rate of 20% in the future. The company has already secured key customers like Meta Platforms and Alphabet, and a recent Reuters report suggests that OpenAI is also looking to build an in-house chip with Broadcom's assistance. Broadcom's AI opportunity is not limited to custom chips alone. Its networking business has also benefited from the increasing deployment of AI data centers with fast connection needs. In fiscal Q3, the company's networking revenue increased by an impressive 43% year over year, driven mainly by the growing deployment of AI clusters by hyperscale cloud service providers. Thanks to these solid tailwinds, it is evident why Broadcom's earnings are forecast to increase at an annual rate of 20% for the next five years, which is well above Tesla's expected growth over the same period. With a market cap of $813 billion, Broadcom is only 27% away from matching Tesla's current market cap. Already the 11th-largest company in the world, just behind TSMC, Broadcom seems poised to outgrow Tesla within the next five years considering its stronger earnings growth and its robust position in the AI chip market.

Broadcom's success in the AI chip market and its diversified business model give it a competitive edge. Its ability to adapt to the changing technological landscape and capture significant market share makes it a serious contender to Tesla's market leadership. As the demand for AI continues to rise, Broadcom is well-positioned to thrive and potentially overtake Tesla in the coming years.