Tesla shares have advanced 50% in the last three months on expectations the company will benefit from the ties between CEO Elon Musk and President Donald Trump, especially where autonomous vehicle regulations are concerned. Tesla is now the eighth largest company in the world, with a market value of $1.3 trillion as of Jan. 25.
However, certain Wall Street analysts anticipate that Broadcom (AVGO -17.40%) and Taiwan Semiconductor Manufacturing Company (TSM -13.33%) will top Tesla’s current market value before the end of 2025. Here are the details:
- Joseph Moore at Morgan Stanley recently raised his bull-case target price on Broadcom to $331 per share. That implies 35% upside from its current share price of $245. It also implies a market value of $1.5 trillion.
- Phelix Lee at Morningstar recently raised his target price on Taiwan Semiconductor to $273 per American depositary receipt (ADR). That implies 23% upside from its current ADR price of $222. It also implies a market value of $1.4 trillion.
Here’s what investors should know about Broadcom and Taiwan Semiconductor.
1. Broadcom
Broadcom supplies a range of semiconductors and infrastructure software. Particularly consequential is its leadership in wireless chips, which are found in Apple iPhones and certain Samsung Galaxy smartphones. Broadcom also dominates the market for high-end Ethernet switch chips, which are found in data center networking gear used to support artificial intelligence (AI) workloads.
Additionally, Broadcom is the leader in high-end, application-specific integrated circuits (ASICs), which are chips built for specialized use cases like AI. Importantly, the company currently designs custom AI chips for three hyperscale clients: Alphabet‘s Google, Meta Platforms, and TikTok parent ByteDance. But Broadcom recently announced two new hyperscale clients that, while unnamed, are suspected to be Apple and OpenAI.
Broadcom reported solid financial results in the fourth quarter of fiscal 2024, which ended in November. Sales increased 51% to $14 billion, though organic sales rose just 11% because the VMware acquisition added 40 points to growth. Meanwhile, non-GAAP earnings increased 28% to $1.42 per diluted share. And CEO Hock Tan shared a very upbeat outlook about future revenue from custom AI chips.
Wall Street expects Broadcom’s adjusted earnings to grow 29% in the next four quarters. That makes the current valuation of 50 times adjusted earnings look reasonable. And if the company meets that consensus earnings estimate, its market value could hit $1.4 trillion in 2025 with no change in the current price-to-earnings multiple. That would make Broadcom more valuable than Tesla is today.
As a caveat, most Wall Street analysts currently expect Broadcom shares to decline in the near term. The median 12-month target price of $200 per share implies 18% downside from the current share price of $245. But Morgan Stanley analyst Joseph Moore sees Broadcom as one of the most compelling investment options in AI semiconductors, so investors should consider starting with a small position today.
2. Taiwan Semiconductor
Taiwan Semiconductor Manufacturing Company (TSMC) is the largest contract chipmaker, or semiconductor foundry, in the world as measured by revenue. Its market share increased 5 percentage points to 64% during the September quarter. That scale is an important competitive advantage. Semiconductor manufacturing is costly, but TSMC’s ability to outspend peers has kept it on the leading edge of process technology.
Morningstar analyst Phelix Lex highlighted that advantage in a recent note. To paraphrase: TSMC builds chips that are increasingly compact, powerful, and efficient, which not only affords the company pricing power but also makes it the manufacturer of choice for the most sophisticated semiconductors. TSMC manufactures AI chips for several premiere companies, including Apple, Nvidia, Qualcomm, and Broadcom.
TSMC reported solid results in Q4, beating estimates on the top and bottom lines. Revenue rose 37% to $27 billion due to strong demand for its most advanced process technologies (3-nanometer and 5-nanometer chips) for high-performance computing and smartphones. Meanwhile, operating margin expanded 7 percentage points and net income rose 55% to $2.24 per ADR.
Wall Street expects TSMC’s earnings to increase 17% in the next four quarters. That makes current valuation of 31.5 times earnings look reasonable. However, TSMC expects its AI accelerator revenue to double in 2025, while total sales increase in the mid-20% range. That leaves room for earnings to grow faster than analysts anticipate, which could support the 23% increase in share price needed for the company to attain a market value of $1.4 trillion in 2025.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
