Prediction: These Will Be the Next 3 Stocks to Join the $3 Trillion Club
Key Points
Amazon's artificial intelligence chip business is booming.
Taiwan Semiconductor is the dominant chipmaker for the AI build-out.
Broadcom expects to more than double its business by the end of next year.
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The $3 trillion club is a fairly exclusive place to be. Only four companies have ever crossed into the $3 trillion range, and only three of them are still there (Microsoft is currently out of the $3 trillion club). Over the next few years, I expect a couple of new entrants into this valuation level.
The companies are rather predictable, as they are the fifth, sixth, and seventh largest companies in the world right now: Amazon (NASDAQ: AMZN), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Broadcom (NASDAQ: AVGO). Still, I think these companies are worth keeping an eye on, as they could reach the $3 trillion point faster than most believe.
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Image source: Getty Images.
Amazon
Amazon is the fifth-largest company in the world and only needs to add about $400 billion to its market cap to get to $3 trillion. While that's a major jump, I think Amazon could easily do it, and the source may come from an unlikely place.
Although most of the focus is on Amazon's commerce division, I think investors should spend most of their time and energy looking at Amazon Web Services (AWS). AWS is Amazon's cloud computing wing and generates the majority of Amazon's profits in a normal quarter. During the fourth quarter (Q4), AWS accounted for 50% of Amazon's operating profits, but that's a quarter marked by increased holiday spending. In Q3, AWS accounted for 66% of its operating profits.
AWS is slated to thrive in the age of AI and is already seeing incredible demand for its custom AI chips. Nearly all of the capacity for its latest Trainium chips has sold out, and they offer better price performance than training based on graphics processing units (GPUs). This will continue boosting AWS's growth rate over the next few years, making Amazon a smart pick to cross over the $3 trillion threshold before 2026 is over.
Taiwan Semiconductor
Taiwan Semiconductor is the second-largest company on this list, just barely ahead of Broadcom with a $1.9 trillion market cap versus Broadcom's $1.8 trillion. Taiwan Semiconductor is an integral part of the AI build-out, as its chips go into nearly every chip designer's computing units. Taiwan Semiconductor factories have the largest capacity and best technology of anyone in the logic chip space, making it the go-to partner to fabricate chip designs.
This has led to strong growth, and it doesn't look likely to slow down anytime soon. Taiwan Semiconductor reports monthly revenue figures, which give an idea as to how it's doing each month of the year. These numbers can be highly dependent on the number of working days in a month, so investors need to be careful not to extrapolate too far. But in January, revenue rose 37%; in February it was up 22%; and in March it soared 45%. Those are outstanding growth figures and showcase that the AI build-out isn't slowing down anytime soon, and that should power TSMC to the $3 trillion club over the next few years.
Broadcom
Broadcom is another player in the AI computing chip industry. It's taking a similar approach to Amazon, as it's offering custom AI chips that offer significant cost advantages over GPU-based training, as long as the workload is properly configured. Broadcom boasts several major clients, including Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and its Tensor Processing Unit (TPU).
The demand for these chips is expected to soar, and with new customers coming online, Broadcom believes it can deliver $100 billion or more in custom AI chip revenue by the end of 2027. Wall Street analysts are also on board with this projection and predict that Broadcom's revenue will rise 63% this year and 50% next year. At the end of fiscal 2027, they project Broadcom will generate $157 billion in revenue, more than double what it is today.
AVGO Revenue (TTM) data by YCharts.
That will easily allow Broadcom to rise from its current $1.8 trillion level to the $3 trillion mark by the end of next year, identifying more than 50% upside in just under two years -- a phenomenal investment opportunity.
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Keithen Drury has positions in Alphabet, Amazon, Broadcom, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
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