Since the start of the year, the prices of numerous artificial intelligence (AI) stocks have declined, presenting a potential buying opportunity for investors eager to tap into a major technological trend.
While specific returns cannot be promised, investing in shares of leading AI firms could yield substantial profits as the sector is projected to expand into a $15.7 trillion market by 2030. Firms specializing in AI processing are positioned for significant growth, making Nvidia (NVDA 0.76%), Broadcom (AVGO -2.19%), and Taiwan Semiconductor Manufacturing (TSM 2.17%) as strong candidates for enhancing returns in the coming years. Here’s how these companies can help.
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1. Nvidia: A Premier AI Investment
With a staggering 2,000% surge in its share price over the last five years, Nvidia has already created numerous millionaires. While such high returns might be challenging to replicate, the company still has significant growth potential ahead.
Currently dominating the AI processor sector (some estimates suggest it holds as much as a 95% market share), Nvidia has experienced remarkable growth in data center sales, which increased by 93% in the last quarter to $35.6 billion.
Anticipating further expansion, Nvidia recently introduced its new Blackwell AI processors, which surpass the capabilities of earlier models. The strong demand for these processors raised sales to $11 billion in the fourth quarter (ending January 26), accounting for 31% of total data center sales. The long-term outlook remains positive as the necessity for more potent data centers continues to rise. CEO Jensen Huang highlighted that current computing capacity is now 100 times greater than prior to the launch of ChatGPT, and as AI technology evolves, even higher computing power will be required.
2. Broadcom’s AI Processor Growth
While much of the spotlight on AI processors shines on Nvidia, Broadcom also plays a significant role. The company specializes in application-specific integrated circuits (ASICs) utilized in various AI data centers, with prominent clients such as Meta and Alphabet.
In its first fiscal quarter, Broadcom reported an impressive 77% increase in AI revenue, reaching $4.1 billion, alongside strong earnings of $1.14 per share according to generally accepted accounting principles (GAAP). Looking ahead, CEO Hock Tan foresees a total addressable market for the company that could reach $90 billion within the next two years. With the growth of AI data centers, Broadcom is well-positioned to capitalize on this demand.
3. Taiwan Semiconductor: Leading Manufacturer
Most companies don’t handle the manufacturing of their own AI processors; they turn to Taiwan Semiconductor Manufacturing Company (TSMC) for its advanced production capabilities. TSMC is responsible for manufacturing approximately 90% of the most advanced processors globally, with its recent financial results showcasing its strength, including a 37% year-over-year revenue increase to $26.8 billion and a 57% earnings rise to $2.24 per American depositary receipt.
Management indicated on the latest earnings call that demand for AI is expected to spur additional growth, with predictions that AI sales could double by 2025. This anticipation appears justified, as major tech players like Oracle, OpenAI, and Microsoft have already committed hundreds of billions in data center investments. Although TSMC’s stock has dipped roughly 13% since the beginning of the year due to investor concerns over trade wars and economic slowdowns, this decline presents a chance for investors to acquire shares of this key AI player at a favorable price as spending on AI continues to increase.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
