The market sell-off has harmed multiple companies and even caused a handful to fall out of the $1 trillion valuation club. Broadcom (NASDAQ: AVGO) and Taiwan Semiconductor Manufacturing (NYSE: TSM) are two companies that have fallen below this exclusive valuation level.
Both companies currently have around a $915 billion valuation, but I think there’s an incredibly likely chance they will return to that $1 trillion market cap by the end of the year. There are just too many trends in their favor for them to stay beaten down for long, and I think a year’s worth of financial results will cause them to rejoin that 10-figure club.
Both Broadcom and Taiwan Semiconductor are heavily involved in the AI race. Broadcom has a ton of products in its portfolio, including mainframe software and hardware, and virtual desktop offerings. Its AI is focused on two areas: connectivity switches and custom AI accelerators, which it calls XPUs.
Connectivity switches help direct the flow of information traffic in data centers and are a vital part of every build. XPUs are an alternative to GPUs (graphics processing units) such as those made by Nvidia.
When the workload is properly configured, XPUs are more efficient than GPUs at AI training tasks. This makes these devices fantastic for one type of task but horrible if the computing power needs to be used to do something else. However, with how many resources are being dumped into building AI models, it makes sense to focus and devote investments to hardware that will only be used for AI training.
The company is working on scaling up its connectivity switches and XPU infrastructure to create AI clusters that can have nearly 1 million XPUs. That kind of computing power focused on one task is nearly unheard of right now and could unlock a new level of AI progress.
Currently, Broadcom has three primary XPU customers, and it expects to have a serviceable addressable market between $60 billion and $90 billion by 2027. However, it also has four new clients that are getting their XPUs designed and running, which will dramatically expand this market.
Considering that its AI revenue base (which includes switches and XPUs) was only $12.2 billion in 2024, it’s clear that Broadcom has a massive runway and could be a huge winner in the coming months. As a result, I think there’s a strong chance that it can easily rise over 10% to rejoin the $1 trillion club.
Broadcom can help its clients design XPUs and provide them with connectivity switches, but it can’t manufacture the semiconductors that go into them. That’s where Taiwan Semiconductor (or TSMC) comes into the picture. It is the world’s leading chip manufacturer, and it takes designs from customers and manufactures its chips for them.
This allows TSMC to benefit from Broadcom’s growth as well as from other competitors in this space, like Nvidia and Advanced Micro Devices. Its neutral position also gives it great insight into the future because many of these chip orders are placed years in advance. Management sees its AI-related revenue having a 45% compound annual growth rate (CAGR) over the next five years, with the companywide CAGR approaching 20%.
That’s huge growth, and it’s all fueled by massive demand for its current chips as well as future technologies it is working to implement. In 2025 and 2026, TSMC is expecting to launch its 2nm and 1.6nm chip nodes. The big focus on these innovations is increased efficiency, as the 2nm chip will consume 20% to 30% less power when configured for the same computing power level. The 1.6nm chip will provide yet another 15% to 20% improvement in power consumption.
Operating costs are a large part of the computing equation, so these innovations will likely push the AI hyperscalers toward the next generation of chips. This should help TSMC grow significantly over the next few years and turn it into a market-crushing stock.
Taiwan Semiconductor’s business is doing just fine right now, even though the market says otherwise. The company reports monthly revenue growth, and its sales rose 36% in January and 43% in February, indicating no issues with its business. As a result, I wouldn’t be surprised if Taiwan Semi rejoins the $1 trillion club by the end of the year; it’s too important a company not to receive significant investing interest.
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Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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