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there is no doubt about it Amazon (AMZN -2.42%) has been a technology dynamo for most of its history, delivering incredible returns to long-term investors.
However, the company’s performance has been mixed lately. Indeed, Amazon’s stock has almost doubled in this one year of his, but only because it fell so much in his 2022 bear market. In fact, Amazon has yet to surpass its 2021 peak. S&P500 and Nasdaq Composite It has returned to the momentum of hitting a new all-time high.
Amazon’s recent performance has been strong, but there are signs that the company is losing its edge. Revenue growth at Amazon Web Services, the company’s cloud computing business, has slowed significantly, falling to 13% in the fourth quarter, leaving it well behind its two biggest rivals. microsoft with azure alphabetGoogle Cloud. Growth in the company’s e-commerce business has slowed to a similar pace, and even faster. walmart.
Amazon also appears to be late in the artificial intelligence (AI) race. In September, Alphabet made a multibillion-dollar investment in Anthropic AI, a move that appears to have been designed to compensate for a lack of previous strategy.
Amazon is a member of the Magnificent Seven, a group of the world’s most valuable technology companies. These seven companies contributed the most to the market’s overall stock price gains last year. But Amazon’s biggest innovation may be behind it. CEO Andy Jassy appears to have pivoted from experimentation to a focus on profitability, which could weaken the company in the long run. For example, marketplace sellers are outraged by new fees that have prompted an investigation by the Federal Trade Commission.
In my opinion, one of the leading technology companies that would be a strong candidate to replace Amazon in the Magnificent Seven is: Taiwan semiconductor manufacturing company (TSM -1.89%).
Image source: Getty Images.
Probably the most important company in the world
It’s no exaggeration to say that Taiwan Semiconductor Manufacturing Co., Ltd. (also known as TSMC) is the most important company in the world. The world’s largest chip manufacturer. The company handles about 55% of contract chip manufacturing and 90% of cutting-edge chips, and its share could be even higher.
TSMC is a company that tech giants like apple, Nvidia, broadcom, Advanced Micro Devices, and even Amazon relies on chip manufacturing, giving it enormous market power. Perhaps no other company would have such an impact on the world if it ceased operations today.
TSMC’s market power is also reflected in its business results. In the fourth quarter, the company made an operating profit of $8.2 billion on revenue of $19.6 billion, with an operating margin of 42%, clearly demonstrating the company’s pricing power. .
TSMC is also vital to generative AI technology, with companies like Nvidia producing cutting-edge graphics processing units (GPUs) and other chips that can power and train generative AI applications like ChatGPT. This is because it relies on TSMC for Demand for these chips far exceeds supply, which should drive TSMC’s profits even higher.
The need to expand chip production is clear, and TSMC plans to build new foundries in the US and other parts of the world. But expanding in the U.S. is facing challenges for some companies, showing that ramping up production of chips, especially cutting-edge ones, won’t be easy.
Why TSMC should join the Magnificent Seven
TSMC, unlike the other companies in the Magnificent Seven, is not a US-based company. However, in the US it is listed on the New York Stock Exchange. As of March 11, the market capitalization was $721 billion; teslawhich means it is eligible for a spot in the group based on its size.
But the biggest reason to include TSMC in the Magnificent Seven is because it represents the future of technology. The company is a major supplier of his AI chips and other advanced processors, and will almost certainly continue to be so.
The company has returned to increasing revenue after the chip industry’s last downturn, and its stock has risen 34% since the beginning of the year as investors recognize the company’s important place in the AI supply chain.
TSMC looks like a good bet to outperform Amazon and other members of the Magnificent Seven for the remainder of this year. It deserves a place among the elite group of tech stocks.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Jeremy Bowman has held positions at Amazon and Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, Tesla, and Walmart. The Motley Fool recommends Broadcom and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
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