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Apple’s growth is slowing down.
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Taiwan Semiconductor’s management sees monster growth over the next few years.
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Broadcom’s XPU is becoming a popular alternative for AI computing.
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Technology is ever-changing, and companies must stay on their toes or risk becoming obsolete. Apple (NASDAQ: AAPL) 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 (NYSE: TSM) and Broadcom (NASDAQ: AVGO). 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.
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.
Considering the S&P 500 (SNPINDEX: ^GSPC) 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.
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.