It's no secret by now that artificial intelligence (AI) is gaining traction in the stock market. All three major indexes recently hit record highs, confirming that a new bull market is underway, and artificial intelligence is a big reason why.
The launch of ChatGPT in late 2022 signals that the next era of technology is underway, with generative AI leading to billions of dollars being poured into AI infrastructure by big tech companies and others. was the clearest sign.
In the early stages, Nvidia The company was a big winner as demand for its graphics processing units (GPUs) soared, and other AI hardware stocks soared as well. But breakthrough technology will create even more winners. Keep reading to take a look at two companies that are likely to become trillion-dollar companies in the next few years thanks to AI.
1. Taiwan Semiconductor Manufacturing
Nvidia may seem like a pick-up in the AI ​​boom, but if you take that idea a step further, the higher-level pick-up in the industry looks like this: taiwan semiconductor manufacturing (TSM 0.78%).
TSMC, as it is well known, is the world's largest contract chip manufacturing company with approximately 55% market share in the third-party chip manufacturing market and approximately 90% of advanced chip manufacturing. This typically includes semiconductors and complex components of the kind involved in generative AI. Given this market power, it's no exaggeration to say that the company is at the heart of the growth of generative AI and the broader semiconductor industry.
Its largest customers include companies such as: appleNvidia, broadcomand Advanced Micro Devices. These companies are emerging or aspiring to become generative AI powerhouses.
TSMC's advantages over other foundries in advanced chip manufacturing and relationships with those top chip designers will help fuel the company's growth in the AI ​​era. The company should also benefit from increased demand for chips as AI plays a larger role in technology and the economy.
TSMC has a wide operating margin of over 40%, which represents a competitive advantage, and the company's current market capitalization is $709 billion. Given its valuation and growth, it could exceed $1 trillion within a year or two.
2.Broadcom
broadcom (AVGO 0.41%) is another AI stock that is currently valued at $573 billion and is likely to cross the $1 trillion mark in the next few years. Growth driven by AI is also starting to accelerate.
Although the company is best known as a chip design company, its business is far-reaching as it has grown through several acquisitions over its history. Broadcom's most recent acquisition of virtualization software specialist VMWare is set to significantly boost its revenue and profits this year. It also owns cybersecurity company Symantec and enterprise software and DevOps company CA Technologies.
Broadcom has a history of acquiring companies, cutting costs and folding them into its larger business to increase revenue and profits.
Broadcom doesn't compete in GPUs, but is known for its switches, accelerators, and networking solutions, which are expected to see increased demand in the AI ​​era. In its recent earnings call, management noted strong demand for custom accelerators as well as AI data center networking products.
The company also noted that AI revenue quadrupled to $2.3 billion in the quarter, and revised its AI-related revenue forecast upward. Broadcom said this will account for about 35% of its semiconductor sales, or more than $10 billion, up from its previous forecast of 25% of sales.
Like TSMC, Broadcom boasts wide operating margins, with earnings before interest, taxes, depreciation, and amortization (EBITDA) margins expected to be 60% this year, a sign of its competitive strength.
With a variety of ways to capitalize on the AI ​​boom, Broadcom looks well-positioned to be a winner. A 70% increase in market capitalization over the next few years is certainly within reach for the diversified semiconductor giant, which would make it worth $1 trillion.
Jeremy Bowman holds a position at Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.