Meet the Newest Members of the $1 Trillion Club

Imagine if Santa Claus named his reindeer after companies that have market values of over a trillion dollars. Instead of calling out, "Now, Dasher! Now, Dancer! Now, Prancer and Vixen! On, Comet! On Cupid! On, Donder and Blitzen!" he might say, "Now, Apple! Now, Microsoft! Now, Nvidia and Amazon! On Alphabet! On Meta! On Tesla!"

Just like Rudolph joined the team later, two new companies have recently entered the $1 trillion club. Though neither of these newcomers has a glowing red nose, one of them has particularly caught Wall Street's attention with its bright prospects.

New Members of the Trillion-Dollar Club

The firms in the $1 trillion club have something in common: they are all deeply involved in artificial intelligence (AI). Apple recently unveiled its new Apple Intelligence generative AI features. Microsoft has teamed up with OpenAI and integrated GPT-4 into various products. Nvidia provides GPUs which are essential for AI applications. Amazon and Alphabet, alongside Microsoft, are the top three providers of cloud infrastructure, supporting numerous AI models. Meta uses AI in its social media platforms and has developed the Lllama open-source AI model. Tesla incorporates AI into its Autopilot self-driving technology.

The latest additions to this club also excel in AI. Broadcom (AVGO) is a leading semiconductor company, with a growing number of chips being used in AI applications. Taiwan Semiconductor Manufacturing (TSM), the largest third-party semiconductor foundry globally, produces chips for many prominent AI enterprises.

About six months ago, I anticipated that Broadcom and Taiwan Semi would be the next to hit the $1 trillion mark. I was surprised at how swiftly this prediction came true. Taiwan Semi's market cap briefly crossed the $1 trillion threshold in mid-October, with fluctuations below and above this level since then. Meanwhile, Broadcom only just became part of the club days ago.

How They Achieved Significant Gains

Broadcom experienced remarkable growth in the first half of 2024, with its share price soaring over 40%. Analysts upgraded their ratings and raised price targets. Investors were also enthusiastic about a 10-for-1 stock split that took place in July. However, Broadcom's momentum stalled temporarily. After announcing its fiscal 2024 fourth-quarter results on December 12, the stock surged. Investors particularly responded to CEO Hock Tan's statement, claiming, "We see our opportunity over the next three years in AI as massive."

The first half of 2024 was even more impressive for Taiwan Semi, which saw the stock rise nearly 70% thanks to robust performance. Positive news from major clients, particularly Nvidia, also contributed to this success. Management is optimistic about AI demand, with CEO C.C. Wei mentioning, "We observe extremely robust AI-related demand from our customers," and noting that almost every AI innovator works with Taiwan Semi.

Wall Street's Preference

Wall Street has a favorable view of both trillion-dollar AI stocks. Out of 43 analysts surveyed in December covering Broadcom, eight labeled it as a strong buy, and 30 considered it a buy. In contrast, only 17 analysts are monitoring Taiwan Semi. Among them, four rated the stock as a strong buy, while 12 rated it as a buy.

However, Broadcom's recent price surge has left its price targets lower than the current share price. The average 12-month target for Broadcom is approximately 11% below the current price. On the other hand, the analysts' average price target for Taiwan Semi reflects an upside potential of about 13%.

At present, Taiwan Semi seems to be Wall Street's favorite among the two. Yet, both companies may continue to show positive growth in the upcoming year.

stocks, investment, AI