Prediction: This Artificial Intelligence (AI) Semiconductor Stock Will Join Nvidia, Microsoft, Apple, Alphabet, and Amazon in the $2 Trillion Club by 2028. (Hint: Not Broadcom)

Big tech companies are set to spend $375 billion on artificial intelligence (AI) infrastructure this year, according to estimates from analysts at UBS. That number will climb to $500 billion next year.

The biggest expense item in building out AI data centers is semiconductors. Nvidia (NVDA -3.38%) has been by far the biggest beneficiary of that spend so far. Its GPUs offer best-in-class capabilities for general AI training and inference. Other AI accelerator chipmakers have also seen strong sales growth, including Broadcom (AVGO -3.70%), which makes custom AI chips as well as networking chips, which ensure data moves efficiently from one server to another, keeping downtime to a minimum.

Broadcom's stock price has increased more than fivefold since the start of 2023, and the company now sports a market cap of $1.4 trillion. Another year of spectacular growth could easily place it in the $2 trillion club. But another semiconductor stock looks like a more likely candidate to reach that vaunted level, joining Nvidia and the four other members of the club by 2028.

Is Broadcom a $2 trillion company?

Broadcom is a massive company with operations spanning hardware and software, but its AI chips business is currently steering the ship.

To that end, AI revenue climbed 46% year over year last quarter to reach $4.4 billion. Management expects the current quarter to produce $5.1 billion in AI semiconductor revenue, accelerating growth to roughly 60%. AI-related revenue now accounts for roughly 30% of Broadcom's sales, and that's set to keep climbing over the next few years.

Broadcom's acquisition of VMware last year is another growth driver. The software company is now fully integrated into Broadcom's larger operations, and it's seen strong success in upselling customers to the VMware Cloud Foundation, enabling enterprises to run their own private clouds. Over 87% of its customers have transitioned to the new subscription, resulting in double-digit growth in annual recurring revenue.

But Broadcom shares are extremely expensive. The stock garners a forward P/E ratio of 45. While its AI chip sales are growing quickly and it's seeing strong margin improvement from VMware, it's important not to lose sight of how broad a company Broadcom is. Despite the stellar growth in those two businesses, the company is still only growing its top line at about 20% year over year. Investors should expect only incremental margin improvements going forward as it scales the AI accelerator business. That means the business is set up for strong earnings growth, but not enough to justify its 45 times earnings multiple.

Another semiconductor stock trades at a much more reasonable multiple, and is growing just as fast.

The semiconductor giant poised to join the $2 trillion club by 2028

Both Broadcom and Nvidia rely on another company to ensure they can create the most advanced semiconductors in the world for AI training and inference. That company is Taiwan Semiconductor Manufacturing (TSM -3.05%), which actually prints and packages both companies' designs. Almost every company designing leading-edge chips relies on TSMC for its technological capabilities. As a result, its market share of semiconductor manufacturing has climbed to more than two-thirds.

TSMC benefits from a virtuous cycle, ensuring it maintains and grows its massive market share. Its technology lead helps it win big contracts from companies like Nvidia and Broadcom. That gives it the capital to invest in expanding capacity and research and development for its next-generation process. As a result, it maintains its technology lead while offering enough capacity to meet the growing demand for manufacturing.

TSMC's leading-edge process node, dubbed N2, will reportedly charge a 66% premium per silicon wafer over the previous generation (N3). That's a much bigger step-up in price than it's historically managed, but the demand for the process is strong as companies are willing to spend whatever it takes to access the next bump in power and energy efficiency. While TSMC typically experiences a significant drop off in gross margin as it ramps up a new expensive node with lower initial yields, its current pricing should help it maintain its margins for years to come as it eventually transitions to an even more advanced process next year.

Management expects AI-related revenue to average mid-40% growth per year from 2024 through 2029. While AI chips are still a relatively small part of TSMC's business, that should produce overall revenue growth of about 20% for the business. Its ability to maintain a strong gross margin as it ramps up the next two manufacturing processes should allow it to produce operating earnings growth exceeding that 20% mark.

TSMC's stock trades at a much more reasonable earnings multiple of 24 times expectations. Considering the business could generate earnings growth in the low 20% range, that's a great price for the stock. If it can maintain that earnings multiple through 2028 while growing earnings at about 20% per year, the stock will be worth well over $2 trillion at that point.