Tesla (NASDAQ: TSLA) gets a lot of media attention thanks to its high-profile founder and high-quality products. That’s translated to momentum in the stock market, but there are other great companies flying somewhat under the radar. Consider two other powerhouses with cheaper valuations and sustainable competitive advantages to unlock long-term growth.

Where will Tesla be in 10 years?

Tesla earned a place in the heralded “Magnificent Seven,” which are disruptive technology powerhouses that fueled market index performance throughout much of the past two years. Investors have been enamored with Tesla’s rapid ascent in the auto manufacturing industry and its dominant leadership of the emerging electric vehicle (EV) market.

Tesla stock was one of the market’s biggest success stories for years, but investors are questioning that narrative as they reconcile bullish expectations with the company’s financial results. Economic cycles and the business maturation process have interfered with Tesla’s growth and profitability, creating uncertainty around future cash flows.

Tesla’s total revenue grew 2% last quarter, while auto sales declined from the prior year. The shortfall was offset by growth in its energy storage segment. Its gross margin on auto sales fell from 17.5% to 13% over the past year. This is a worrying sign that suggests lost pricing power.

The drastic slash to margins could reflect the timing of certain model launches and aggressive pricing responses to macroeconomic conditions, but the rising threat of competition could play a pivotal role. Gross profit deterioration led Tesla to report lower operating profits. Capital expenditures continued to rise, squeezing free cash flow from both sides of the equation. Investors generally don’t look favorably upon narrow-margin businesses with volatile pricing and gross profits, so the recent trends are discouraging.

Tesla still dominates the global EV market, but that leadership is under attack. Its market share recently fell under 50%, with several major manufacturers catching up. It’s losing ground to the field, and the impact of its first-mover status appears to be dwindling. The prospect of price-competitive alternatives from China also casts an ominous shadow.

None of these factors are necessarily insurmountable issues. On the surface, Tesla makes a high-quality product, it’s growing and profitable, it’s effectively navigating a difficult selling environment, and it’s still at the top of a growth industry. Unfortunately for shareholders, all those favorable attributes are already assumed in the stock’s price.

Tesla’s market cap is $830 billion. Its forward P/E ratio is more than 70 and its price-to-sales ratio is 9.5. Those are both expensive, and they don’t fit with the company’s growth rate. The company’s financial returns would need to expand more than 30% to make its PEG ratio better aligned with the forward P/E. That might happen, but the threats to pricing and growth outlined above will be challenges. Investors might find high-quality stocks with more upside potential elsewhere in the market.

First stock to watch: Visa

Visa (NYSE: V) is one of the largest and most successful fintech companies. It tops a short list of peers as the global leader in card payment processing. Payment technology has been ripe for innovation in recent years, but Visa has managed to embrace emerging technologies to sustain its growth in the face of disruption.

Blockchain and PayPal would seem to be major threats, but Visa continues to expand along with global commerce. It’s managed to thrive as the fintech world changes around it.

Visa’s dominance is substantial enough that it recently came under scrutiny from regulators. The Department of Justice recently sued the payment processor, alleging a monopoly in the debit card market that increases prices for consumer goods across the board. Visa has dismissed the validity of the lawsuit, but it seems likely that there will be some compromise on fees charged to merchants for debit card transactions. That’s a challenge to growth from the current level, but the long-term catalysts are still in play.

Visa’s scale and technology base allows it to provide reliable, cheap, and efficient transaction services. This contributes to a strong brand and makes it exceptionally difficult for competitors to offer superior quality or more favorable pricing. That’s the basis of an economic moat that should protect the growth trajectory of Visa’s future cash flows.

The fintech leader’s $554 billion market cap would need to increase 65% to equal Tesla’s market cap. Visa’s forward P/E ratio is 24, which compares favorably to the 10% growth rate from its most recent quarter. Of course, capital market conditions ultimately dictate the performance of stocks in general, but Visa stock should continue climbing higher relative to the market as its cash flows expand.

Second stock to watch: Taiwan Semiconductor Manufacturing

Semiconductor stocks are notoriously cyclical, and industry leaders such as Nvidia and Broadcom have been caught up in the AI frenzy over the past two years. Those forces can promote volatility, making it difficult to forecast share prices.

Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC, is a broader bet on the microchip industry as a whole. TSMC provides outsourced fabrication services for many of the largest chipmakers. Investors have seen various semiconductor powerhouses rise and fall with shifting trends in technology and computing. New generations of chips roll out every couple of years, which can rapidly shake up market share.

While its customers rise and fall, TSMC remains the go-to for production. It holds somewhere between 50% and 60% of the global chip foundry market. The company’s prospects are essentially tied to long-term demand for semiconductors and the avoidance of catastrophic geopolitical conflict in East Asia. There are no doubt risks on each of those fronts, but the overall outlook is promising right now.

TSMC’s market cap is nearly $930 billion, so it’s already worth more than Tesla. The chip foundry overtook the EV maker earlier this year, and it’s in a strong position to maintain that position.

TSMC’s compound annual growth rate has been around 17% over the past five years, with cash flow expanding even more rapidly. It’s not fair to assume that this rate will be sustained for the next decade, but that stellar performance combined with the semiconductor industry outlook make it unlikely that the company will slow to a crawl.

TSMC’s forward P/E ratio is under 25, so it has much lower hurdles to clear than Tesla to meet investor expectations. This makes it a strong candidate to remain more valuable than the dynamic EV maker.

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Ryan Downie has positions in Nvidia and Visa. The Motley Fool has positions in and recommends Nvidia, PayPal, Taiwan Semiconductor Manufacturing, Tesla, and Visa. The Motley Fool recommends Broadcom and recommends the following options: short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.

Prediction: 2 Stocks That’ll Be Worth More Than Tesla 10 Years From Now was originally published by The Motley Fool