AI Infrastructure Spending Soars: Two Chip Stocks to Watch
Leading tech companies are heavily investing in data centers to meet the growing demand for artificial intelligence (AI) compute capacity. Nvidia (NASDAQ: NVDA), a prominent AI chip leader, forecasts that spending on AI infrastructure could reach between $3 trillion to $4 trillion by 2030, signaling a potentially extended bull market for tech stocks. For investors seeking AI exposure, here are two chip stocks to consider.
Nvidia: The AI Chip Leader
For investors seeking the top chip stock to capitalize on this opportunity, Nvidia remains the premier choice. Its continued growth stems from the high demand for its graphics processing units (GPUs), which are the benchmark for AI workloads.
Nvidia's latest Blackwell chips are experiencing strong demand. In the most recent quarter, the Blackwell platform saw a 17% sequential increase. This strong demand contributed to a 56% increase in total revenue compared to the previous year.
Nvidia's largest customers include tech giants like Meta Platforms, Amazon, and Google Cloud, all of which have the financial capacity to invest heavily in AI infrastructure. Google, for instance, plans to allocate $85 billion this year to data centers and technology to bolster its growth.
Nvidia's Technological Edge
Leading cloud service providers are transitioning to Nvidia's new Blackwell GB300, described by management as a "seamless" upgrade. The GB300 features a liquid-cooled rack containing 72 Blackwell Ultra GPUs and 36 Arm-based Nvidia Grace central processing units (CPUs).
These racks are deployed in large data centers to handle AI training and inference workloads, benefiting Nvidia's shareholders. According to CFO Colette Kress, "The scale and scope of these build-outs present significant long-term growth opportunities for Nvidia."
With $86 billion in trailing-12-month net income, Nvidia is one of the world's most profitable companies. The high margins from its data center business are expected to translate into significant earnings growth and returns for investors as AI infrastructure spending increases.
Broadcom: A Complementary AI Play
Broadcom (AVGO) offers a second compelling chip stock option. The company supplies networking, software, and specialized chips for various markets, including smartphones, industrial applications, and data centers.
The demand for high-performance computing in data centers is fueling significant growth for Broadcom. Its custom AI accelerators are highly sought after due to their power efficiency and performance, offering an alternative to Nvidia's GPUs.
Both Nvidia and Broadcom can thrive in the expansive AI market. Due to high demand, companies often seek alternatives when they cannot acquire enough GPUs from Nvidia. Broadcom recently announced a $10 billion deal to build custom AI chips for an undisclosed customer, believed to be OpenAI, the creator of ChatGPT.
Broadcom's Growth Trajectory
Broadcom stock has surged, up 55% year-to-date, driven by booming business. AI-related revenue grew 63% year-over-year to $5.2 billion, representing roughly a third of its total business. Management anticipates further acceleration in AI chip revenue next quarter.
Furthermore, Broadcom's networking products, such as high-performance Ethernet switches, are in high demand due to the massive data throughput and transfer speeds required for AI workloads. The company also operates a high-margin infrastructure software business for monitoring and securing data center operations.
Broadcom has a track record of delivering profitable growth and rewarding shareholders, and it is poised to continue delivering as the AI boom intensifies. Revenue is projected to increase by 22% this year, with a further acceleration to 32% next year. Investors can anticipate the stock outperforming the market over the next five years.
