Opinion: These Will Be the 2 Largest Stocks by 2030

Apple is currently the world’s largest company, with a market capitalization of over $2.3 trillion, but it wouldn’t be surprising to see the technology giant cede its position to other fast-growing companies that are operating in disruptive areas by the end of the decade.

Tesla (TSLA -1.49%) and Taiwan Semiconductor Manufacturing (TSM -3.86%)popularly known as TSMC, are two companies that have the potential to become the two largest companies in the world by 2030. Both companies should be able to sustain their terrific growth for a long time thanks to massive opportunities in the electric vehicle (EV) and the semiconductor markets.

Let’s take a closer look at the reasons why Tesla and TSMC have the potential to become the largest stocks by 2030.

EV adoption and capacity expansion could bolster Tesla

Tesla stock is down close to 50% in 2022, and the company’s third-quarter results could make things worse for investors thanks to CEO Elon Musk’s statement about demand being harder to come by.

Tesla released its Q3 results on Oct. 19. The company’s revenue shot up 56% year-over-year to $21.5 billion but fell short of the Wall Street’s estimate of $22.1 billion. Tesla’s adjusted earnings also jumped an impressive 69% over the prior- year period to $1.05 per share, beating the consensus estimate of $1.01 per share.

Tesla is confident of ending the year on a high note despite the macroeconomic headwinds arising out of economic downturns in China and Europe, as well as the Federal Reserve’s interest rate hikes. Musk remarked on the latest earnings conference call that Tesla has “excellent demand for Q4.”

He also added that Tesla can “sell every car that we make for as far in the future as we can see,” and sees the company as having the potential to be “worth more than Apple and Saudi Aramco combined.” Given that Tesla has a market cap of $650 billion as of this writing, it still has a long way to go before it catches up to the world’s two biggest companies by market cap.

But the company’s focus on enhancing its manufacturing capacity, which could help it achieve its multi-year target of clocking 50% annual growth in deliveries, could pave the way for it to become the world’s largest company by 2030. For example, Tesla reported an installed annual vehicle production capacity of 1.9 million at the end of the third quarter, a massive increase over the prior-year period’s capacity of just over 1 million vehicles.

The production capacity is set to increase further, as Tesla’s Cybertruck production line is currently in the tooling phase in Texas. The Tesla Semi plan in Nevada has already hit early production. The company also plans to bring other products such as the Roadster and Robotaxi online in the future, which should lead to an increase in production capacity.

In all, Musk has set an ambitious target of selling 20 million vehicles annually by the early 2030s, which would be a massive increase from this year’s planned production target of 1.5 million. Tesla’s aggressive capacity expansion and the fact that the global light EV market could clock annual shipments of nearly 27 million units, compared to 6.3 million units in 2021, indicate that the company is moving in the right direction to make the most of this booming market.

All this indicates why analysts are expecting Tesla’s earnings to grow at 55% a year for the next five years. But even if we assume that Tesla’s bottom line increases at 25% a year through 2030 owing to the growing competition in the EV space, its earnings could increase to $24.30 per share at the end of the decade, compared to 2022’s estimated earnings of $4.08 per share.

Tesla trades at 38 times forward earnings right now. If we assume a similar multiple in 2030, it would translate into a stock price of over $900. In other words, Tesla could quadruple in value over its current stock price. So Tesla’s market cap could approach $3 trillion compared to the current levels in 2030, though it wouldn’t be surprising to see the company become bigger if it grows at a faster pace.

TSMC should capitalize on the semiconductor boom

With a market cap of $330 billion, placing it 16th in the list of the most valuable companies in the world, TSMC has a long way to go before it reaches the top. However, the secular growth in semiconductor demand and TSMC’s 56% share of the global foundry market suggest that it is indeed in the running to become one of the two largest stocks by 2030.

McKinsey estimates that the global semiconductor industry could generate $1 trillion in revenue in 2030, up from $600 billion last year. Semiconductor demand is booming thanks to emerging applications in the automotive industry and the Internet of Things (IoT), as well as the need for faster and more efficient chips.

TSMC is benefiting from these trends, as the company’s latest quarterly results show. The foundry giant is expected to finish the year with $73.3 billion in revenue, an increase of 29% over the prior-year period. Its earnings are forecasted to increase by 30 % to $5.36 per share in 2022. The company expects to maintain its impressive growth rate in the long run. CEO CC Wei said on the company’s October earnings conference call:

We expect strong demand for our leading node technologies, driven by both smartphone and HPC applications to fuel our long-term revenue growth of 15% to 20% CAGR over the next several years in US dollar terms.

The expansion of TSMC’s end-market opportunity and the company’s robust market share suggests that it could very well live up to its forecasts in the long run. Assuming TSMC’s top line grows at an annual pace of 15% through 2030, its annual revenue could hit $224 billion by the end of the decade (using the 2022 revenue estimate as the base).

TSMC commands a five-year sales multiple of 8.5, which it could sustain in the future thanks to its dominant position in the foundry market. Multiplying the sales multiple with the projected revenue in 2030 points toward a market cap of just over $1.9 trillion. But don’t be surprised to see this semiconductor stock sport a bigger market capitalization if it grows at the higher end of its forecasted range, which it could achieve thanks to the massive opportunity it is sitting on.