AI Stocks Poised for Growth in 2025: Nvidia, TSMC, and Microsoft Lead the Pack

2 No-Brainer AI Stocks to Buy in January 2025

These technology giants can prove to be excellent long-term picks in January 2025. Artificial intelligence (AI) has been the hottest buzzword in 2024, and rightly so. With AI being increasingly adopted across industries and functions globally, it has become a major investment theme. While several AI-powered stocks soared in 2024, there is still money to be made in this technological revolution. Purchasing either of these two AI-driven stocks can be a smart move for astute investors in 2025. Here's why. Nvidia For several reasons, Nvidia (NVDA -2.33%) remains a Wall Street favorite. The company has demonstrated exceptional prowess and execution capabilities in the fast-expanding AI computing infrastructure space (AI-optimized hardware and software). Nvidia's third quarter of fiscal 2025 (ended Sept. 30, 2024) is testimony to its AI market dominance. Revenue soared 94% year over year to $35.1 billion, driven mainly by AI-focused data center revenue of $30.8 billion. Nvidia's hardware business is benefiting mainly from two fundamental trends in computing. The transition from central processing unit (CPU)-based coding to graphics processing unit (GPU)-based machine learning and AI algorithms requires nearly $1 trillion worth of data center infrastructure to be upgraded globally. Plus, the widespread adoption of digital intelligence has led to the emergence of a multitrillion-dollar industry of AI factories (each requiring tens of thousands of GPUs). Data centers and enterprises are widely adopting Nvidia's Hopper architecture GPUs for running complex AI workloads. However, the company says the "staggering demand" for its next-generation and customizable "full-stack, full-infrastructure, AI data-center scale" Blackwell architecture systems is expected to be its key growth catalyst in 2025. Blackwell has proved to be 2.2 times faster in training AI models as compared to Hopper chips. Not surprisingly, demand for the cutting-edge Blackwell chips is far outpacing supply -- even though the company has been focused on ramping production capacity. This implies Nvidia will enjoy significant pricing power and robust revenue momentum in the coming months. Nvidia is also seeing major clients such as Salesforce , SAP , and ServiceNow using Nvidia's AI Enterprise platform (software for agentic AI, an autonomous system for decision-making) to build customized copilots and AI-powered agents. With billions of agents expected to be deployed in the coming years, this can prove to be a major growth driver for Nvidia in the long run. Finally, despite Nvidia's exceptional growth, its valuation is not overtly expensive. The stock trades at about 54 times trailing-12-month earnings, lower than its five-year average price-to-earnings (P/E) multiple of 75.9. Furthermore, its price/earnings-to-growth (PEG) ratio is only 0.23 -- implying that the pace of future growth is stronger than that of multiple expansion. Considering that the AI revolution is still in its early stages, Nvidia has much scope to grow in the coming years. Broadcom Broadcom (AVGO -1.59%) has emerged as a standout stock in 2024, driven by its prowess in both customized AI chips and infrastructure software - a differentiated approach compared to Nvidia's general-purpose GPU strategy. By designing custom AI accelerators (XPUs) suitable for the specific requirements of its three major hyperscaler clients, the company has joined their multi-generational AI infrastructure roadmaps. Broadcom is also using advanced 3-nanometer process technology for next-generation AI chips. Furthermore, the company's networking solutions are also in high demand, thanks to Broadcom's deep understanding of scaling AI clusters from thousands to millions of XPUs. Plus, the company also expects a rise in resources allocated to networking content from 5% to 10% of that allotted to computation content to 15% to 20%, as hyperscaler customers expand AI clusters from 500,000 XPUs to 1 million XPUs. Subsequently, Broadcom management now expects a serviceable addressable market for its XPUs and networking components to be between $60 billion and $90 billion by 2027, just from three hyperscaler customers. The success of Broadcom's AI strategy is evident, considering that the company's AI revenue was up by 220% year over year to $12.2 billion in fiscal 2024 (ended Nov. 3). AI revenue now makes up nearly 41% of Broadcom's semiconductor revenue. Broadcom has also successfully integrated the data center virtualization software player VMware in a very short time frame, while improving profitability. VMware's operating margin rose from 30% pre-acquisition to a solid 70%. Broadcom is also ahead of the three-year schedule for delivering incremental adjusted earnings before interest, taxes, depreciation, and amortization of more than $8.5 billion. Broadcom's non-AI semiconductor business is also expected to grow at a steady mid-single-digit rate. The stock is currently trading at 21.6 times trailing-12-month sales, higher than its five-year average price-to-sales ratio of 11.8. However, in the backdrop of explosive growth of AI business and strong financials, the stock may prove to be a smart pick even at the current elevated levels.

2 Magnificent Artificial Intelligence (AI) Stocks to Buy in 2025

The artificial intelligence (AI) investing sector is a gold mine for finding companies with market-beating potential. Nvidia (NVDA -2.33%) and Taiwan Semiconductor Manufacturing (TSM -1.45%) are among the stocks that I think can outperform the market over the next five years. Nvidia Nvidia is a stock that has made plenty of people rich. If you had invested $10,000 in Nvidia a decade ago, you'd now have about $2.7 million. Unfortunately, we don't have a time machine to capture those returns, but Nvidia's future looks bright. Nvidia makes graphics processing units (GPUs), which are used to process the intense calculations necessary to train AI models. GPUs have a unique ability to process multiple calculations in parallel, which lets them outperform traditional CPUs. While other competitors in the GPU market exist, Nvidia's products outperform them. Wall Street analysts expect Nvidia's revenue to increase by about 51% in its fiscal 2026 (ending January 2026). That indicates that Nvidia's growth is far from over. Driving this growth is increased client spending as well as a ramp-up of its next-generation architecture, Blackwell. Blackwell GPUs drastically outperform the previous-generation Hopper GPUs and provide a significant reason to upgrade. Furthermore, GPUs tend to have a lifespan of about three to five years, so a replacement cycle may start soon. Additionally, Nvidia isn't the expensive stock it was once portrayed to be. The stock trades for 54 times trailing earnings, which isn't that much of a premium compared to some of its big tech peers. Nvidia is growing significantly faster than Amazon (48 times earnings), Apple (42 times earnings), and Microsoft (36 times earnings), yet only holds a slight valuation premium to those three. NVDA PE Ratio data by YCharts Nvidia is still a great AI stock to own, and I'm confident it can provide the market-beating returns investors are looking for over the next five years. Taiwan Semiconductor Manufacturing Moving down the value chain, Taiwan Semiconductor makes microchips within Nvidia GPUs. TSMC makes chips for many more customers than Nvidia, but AI-related chips have given the company a huge boost. In Q2 2023, management projected that AI-related hardware would grow at a 50% compound annual rate for the next five years, when it would then make up a low-teens percentage of revenue. However, TSMC's results have far outpaced this projection, as AI revenue is expected to triple for 2024 and now makes up a mid-teens percentage of revenue. Taiwan Semi sees no signs of AI revenue slowing (similar to Nvidia), so it's fairly obvious that it is set to have a great 2025. Wall Street analysts project 25% revenue growth for 2025, but there's another revenue booster on the horizon for 2026. In 2026, Taiwan Semi's next-generation 2 nanometer (nm) chip is slated to reach mass production. These chips can decrease energy consumption by 25% to 30% when configured at the same computing power level as previous-generation 3nm chips. With electricity costs being a significant input for operating a data center, this may cause some clients to upgrade their computing hardware based on the energy cost savings alone. Taiwan Semiconductor's stock is also pretty cheap compared to big tech stocks, and it is growing faster than all of them. TSM PE Ratio data by YCharts There are plenty of reasons to be bullish on Taiwan Semi's stock, and I'm confident it can continue to drive market-beating returns over the next five years.

3 Artificial Intelligence (AI) Stocks I'm Loading Up On in 2025 | The Motley Fool

The art of successful investing often requires looking beyond short-term market movements to identify transformative technological shifts. Rather than focusing on quarterly earnings beats or temporary market sentiment, my investment strategy centers on identifying companies that can compound value over many years or even decades. The emergence of artificial intelligence (AI) represents such an opportunity. While many view the current AI boom skeptically, the technology's potential to reshape our economy grows clearer by the day. Industry analysts project AI could add trillions to global gross domestic product (GDP) by 2030, fundamentally altering how we work, create, and solve problems. For long-term investors, this presents a rare opportunity to participate in a technological revolution from its early stages. As we move into 2025, three companies stand out for their unique positions in the AI value chain. Each brings something different to the table -- from manufacturing the tools that make AI possible to developing the quantum systems that could unlock AI's next chapter. Here's why I plan to aggressively buy these three tech stocks in 2025. ASML Holding N.V. (ASML -0.44%) is the undisputed leader in extreme ultraviolet (EUV) lithography equipment for semiconductor manufacturing. Its stock trades at 27.4 times forward earnings, representing a meaningful premium to the benchmark S&P 500's 24.2 multiple. This premium valuation reflects investors' expectations for continued growth in AI chip demand over the balance of the decade and beyond. In addition to its core position in the AI value chain, ASML offers a growing income stream with its 0.97% dividend yield, backed by a conservative 35.2% payout ratio. Moreover, the company has increased its dividend at an exceptional 23.4% annual rate over the prior five years, ranking among the highest growth rates in the global stock market. The bottom line is that ASML represents a compelling opportunity for long-term investors due to its virtual monopoly in lithography equipment for advanced chip manufacturing (which plays a critical role in AI development) and rapidly growing dividend. Nvidia (NVDA -2.33%) continues to dominate the AI chip market with its graphics processing units (GPU). Trading at 31.3 times forward earnings, Nvidia commands a healthy premium to the S&P 500, reflecting its position as the primary beneficiary of surging AI adoption. While the current 0.03% dividend yield might seem insignificant, the company's blistering 16.3% dividend growth rate over the prior five years and minimal 1.11% payout ratio signal substantial room for future dividend expansion. Nvidia's recent quarterly performance underscores its market dominance. Revenue surged 94% year over year in the most recent quarter, marking the sixth consecutive quarter of exceeding guidance by at least $2 billion. The company's GPUs and proprietary software platform have become the de facto standard for AI development, creating powerful network effects and high switching costs for customers. With AI adoption accelerating across industries and its steadily expanding capital-return program, Nvidia stands out as a foundational holding for AI-focused investors. IonQ (IONQ -5.69%) stands at the forefront of commercializing quantum-computing technology, though its current market valuation of 233 times trailing sales warrants careful consideration. The company's 237% share-price gain in 2024 reflects broader industry momentum, coinciding with significant developments like Alphabet's Willow chip architecture and Amazon's Quantum Embark initiative. A key differentiator in IonQ's business model is its cloud-centric distribution strategy. Through partnerships with Microsoft Azure, Amazon Web Services, and Google Cloud Platform, IonQ has created multiple channels for enterprises to access its quantum systems. This integration with established cloud infrastructure reduces technical barriers to adoption and allows for easier scaling of quantum-computing resources as capabilities advance. However, investors should weigh several critical factors. While IonQ's trapped-ion approach has demonstrated promising coherence times and gate fidelities (i.e., accuracy), the technology still faces significant engineering challenges for practical applications. The company's revenue base remains modest, and achieving commercial scalability requires overcoming both technical and market-education hurdles. The rapid advancement of AI could accelerate quantum-computing development in unexpected ways. AI's demonstrated ability to solve complex optimization problems and discover novel approaches in fields like chip design and materials science may help overcome current technical barriers in quantum computing. IonQ's market position and deep technical expertise make it well-positioned to benefit from potential AI-driven breakthroughs in quantum-computing architecture and error correction. Despite widespread skepticism in the investment community, IonQ's commanding lead in quantum-computing technology and strategic cloud partnerships position it to capture outsized value as the quantum-computing market materializes. While the premium valuation may deter conservative investors, those seeking revolutionary technology exposure could find IonQ's risk-reward profile compelling. Computing's future requires three key elements: the manufacturing precision of ASML's EUV machines, Nvidia's AI ecosystem dominance, and IonQ's quantum-computing potential. While their valuations are rich, each company's strong competitive position and expanding opportunities in an increasingly compute-hungry world make them compelling holdings. As a result, I'm increasing my stakes in Nvidia and IonQ and initiating a position in ASML in 2025.

Top AI Stocks That Could Skyrocket in 2025

The artificial intelligence (AI) sector is poised for significant growth in 2025, with several companies leading the charge in innovation and market expansion. Investors seeking opportunities in this dynamic field should consider the following top AI stocks, each demonstrating strong potential for substantial returns. NVIDIA stands at the forefront of AI hardware and software solutions, renowned for its high-performance graphics processing units (GPUs) essential for AI applications. In 2024, NVIDIA's market value surged by over $2 trillion, reaching $3.28 trillion, driven by the escalating demand for AI-centric chips. The company's strategic investments, totaling $1 billion in AI startups during 2024, underscore its commitment to advancing AI technologies. As of January 2, 2025, NVIDIA's stock price is $134.29, reflecting a slight decrease of 2.09% from the previous close. Analysts project continued growth for NVIDIA, citing its dominance in AI chip development and integration across various sectors.

2 Monster AI Stocks to Buy in January 2025 | The Motley Fool

The U.S. stock market demonstrated remarkable resilience in 2024 despite challenges such as lingering inflation, high interest rates, macroeconomic uncertainties, and geopolitical tensions. Technology companies, particularly those connected to the artificial intelligence (AI) trend, provided much of the market's lift. Not surprisingly, many AI stocks have soared to dizzying heights and now trade at unreasonable valuations. However, there is still money to be made for astute investors if they know where to look. In my view, opening small positions in these two industry leaders could be a smart move now, despite how much their share prices appreciated in 2024. Looking at Taiwan Semiconductor Manufacturing (TSM -1.45%) (aka TSMC), there is a lot to be excited about. Although it's not among the flashy players designing and building fancy models and chatbots, it plays a critical role in the development of AI infrastructure. As the world's largest contract chip manufacturer, TSMC works with almost every major AI innovator in the world, including hyperscalers, chip designers such as Nvidia and Advanced Micro Devices, and consumer tech enterprises like Apple. Not surprisingly, management expects its revenue contribution from AI processors (including AI-optimized CPUs, GPUs, and accelerators) to more than triple in 2024, when it will account for a mid-teens percentage of its total revenue. Management also believes that AI chip demand has much further to grow in the coming years. The analysts at Precedence Research agree, forecasting that the global AI hardware market will grow from $53.7 billion in 2023 to $473.5 billion in 2033. TSMC has emerged as a dominant player in the advanced semiconductor manufacturing space. Advanced process nodes such as 3-nanometer (nm), 5nm, and 7nm accounted for 20%, 32%, and 17%, respectively, of TSMC's wafer revenue in the third quarter. Furthermore, management is working on expanding production capacity for its next-generation 2nm chips, which it plans to roll out in late 2025. Finally, TSMC is working to double its advanced chip packaging capacity to 70,000 wafers monthly in 2025 and 90,000 in 2026 -- better positioning the company to capitalize on the surge in demand for AI-optimized chips. Market research firm IDC expects the global semiconductor industry to grow by 15% and the international foundry market to grow by 20% in 2025. TSMC's revenue is expected to grow at an even faster 25% in 2025. Despite this, TSMC is trading at just 10.5 times, trailing 12-month sales, a reasonable price considering its growth prospects. With an estimated 67% share of the global foundry market in 2025, TSMC seems like a smart AI-powered stock pick. Technology giant Microsoft (MSFT -0.78%) emerged as a compelling top AI pick in 2025, solidifying its position as a front-runner in the AI revolution while maintaining its dominance in traditional software markets. Its strategic $14 billion investment in ChatGPT developer OpenAI has proved transformational. Microsoft has integrated advanced AI technologies into its core offerings, such as the Azure cloud computing platform, Microsoft 365 office productivity suite, and GitHub platform. These moves have in turn helped it drive revenue growth, improve customer retention, optimize costs, and meet competitive pressures. Microsoft's success in monetizing these AI innovations is evident, considering that the annual revenue run rate for its AI business is expected to cross $10 billion in its fiscal 2025 second quarter (which ended Dec. 31). The company's enterprise AI solutions, mainly Copilots, have been prominent new revenue streams. The Microsoft 365 Copilot is already being used by almost 70% of the Fortune 500 companies. The number of enterprise customers using the GitHub Copilot also surged 55% quarter over quarter in its fiscal Q1. OpenAI plans to make changes to its business structure that could benefit Microsoft. Founded as a nonprofit, OpenAI announced plans to restructure into a for-profit model in September 2024. While the nonprofit side will retain either a minority stake or nonvoting shares, the restructuring will allow Microsoft to earn profits that exceed its previously set cap of 100 times its initial investment. OpenAI also wants to remove technology licensing restrictions placed on Microsoft. These concessions could bolster Microsoft's top and bottom lines over the long run. Microsoft's Azure cloud computing business is also a significant growth catalyst. Its revenues grew by an impressive 33% year over year in fiscal 2025 Q1. With data centers in more than 60 global regions and the rapid expansion of Azure OpenAI capabilities, it seems poised for long-term growth. The company's gaming business has also strengthened significantly since it completed the acquisition of ActivisionBlizzard in October 2023. Beyond its operational strengths and diversified business, Microsoft has an enviable financial profile. It has managed its profitability while continuing to reinvest in itself. The company is also committed to rewarding shareholders, as is evident from the $9 billion it distributed through share repurchases and dividends in fiscal Q1. Considering Microsoft's gifts for creating profitable new revenue sources and strengthening its core business, the company's growth trajectory could continue to be impressive in 2025.

2 Top Artificial Intelligence Stocks to Buy in January | The Motley Fool

Artificial intelligence (AI) has created huge opportunities for technology companies as they use it to offer new products and services. Goldman Sachs estimates that companies will pour $1 trillion into generative AI investments over the next few years in their efforts to keep pace with each other. All of that spending will propel some of the world's leading AI companies forward, accelerating their growth in a surge that could last for many more years. But which ones would be the best to invest in now as the AI market takes shape? Here are two AI stocks that should be among your top contenders. Broadcom (AVGO -1.59%) is a major player in the AI market because of its application-specific integrated circuits (ASICs), many of which are now being used in AI data center infrastructure. As companies expand AI models, they need data centers capable of handling ever more sophisticated processing. Tech giants including Alphabet and Meta already rely on Broadcom's hardware to help provide the processing power their AI software demands. Broadcom's top and bottom lines are already benefiting from this increased demand for advanced data center chips. Its sales increased by 44% in its fiscal 2024 to $51.5 billion, and its non-GAAP net income increased by 29% to $23.7 billion. More specifically, the company's AI revenue spiked by 220% to more than $12 billion. There's likely more growth ahead for Broadcom as companies' needs for AI processors increase. For example, in October, Broadcom reportedly began working to design an AI chip for ChatGPT creator Open AI. And Broadcom's management said on the most recent earnings call that based on the roadmaps its large clients have already laid out, by 2027, it will have a serviceable addressable market for its custom AI accelerators and networking hardware in the range of $60 billion to $90 billion. Broadcom currently trades at a forward price-to-earnings ratio of 38.1, which is admittedly pretty expensive compared to the S&P 500's forward P/E ratio of 23.8. But with Broadcom already benefiting from AI demand and with more spending on the way, it's likely that it still has more room to run. Another angle you can take on investing in the AI trend is to buy shares of Taiwan Semiconductor Manufacturing (TSM -1.45%), also called TSCM, which manufactures an estimated 90% of the world's most advanced chips. That dominance has led to significant growth for the company recently. In the third quarter, its sales rose 39% to $23.5 billion and earnings increased by 54% to $1.94 per American depositary receipt (ADR). Many of tech's most important companies are utilizing TSMC's advanced manufacturing to make the best AI processors possible, tapping into its ability to produce 3-nanometer (nm) process node chips -- and its planned commercialization of 2nm process node chips in 2025. If you're skeptical about investing in an AI chip manufacturer rather than an AI software maker, consider that Nvidia CEO Jensen Huang, who has a lot of skin in the AI game as well, estimates that tech companies will spend $2 trillion over the next five years building out AI data centers. Even if they only come relatively close to that estimate, AI represents a massive opportunity for TSCM in the coming years. Taiwan Semiconductor currently trades at a forward P/E ratio of just 22.8, which is much cheaper than many of the company's AI peers and also lower than the S&P 500's average ratio. Between TSMC's relatively inexpensive share price and its leading position in AI chip manufacturing, adding its stock to your portfolio now and holding on for the long term could prove to be a smart move.

Got $3,000? 2 Artificial Intelligence (AI) Stocks to Buy and Hold for the Long Term | The Motley Fool

Artificial intelligence (AI) has come a long way in recent years. Businesses are starting to see tangible savings from implementing this technology in their operations, which is triggering massive investment. Statista projects the AI market to grow at an annualized rate of 28% through 2030 to reach $826 billion. If you have some extra cash you don't need for paying down debt or other expenses, now could be a great time to start putting together a portfolio of growth stocks benefiting from AI that could take off over the next several years. Here are two companies trading at reasonable valuations that can help you profit from this once-in-a-generation investment opportunity. Before consumers and businesses can use AI-powered products, the required computing infrastructure has to be in place to train AI models. This is a tremendous opportunity for Advanced Micro Devices (AMD -1.35%), one of the leading suppliers of graphics processing units (GPUs) and other chip products. AMD supplies various chips for several markets, including consumer PCs and data centers. But strong demand for the Instinct MI300 GPUs fueled a 122% year-over-year increase in data center revenue last quarter, making this segment the largest revenue driver for the company heading into 2025. Meanwhile, AMD is still experiencing incredible demand for its central processing units (CPUs). Large companies continue to use AMD's Epyc CPUs, including Meta Platforms, which has deployed more than 1.5 million Epyc chips in data centers to help power its social media platforms. AMD's spending on research and development has accelerated in the last five years. The company hired thousands of engineers to work on AI, which culminated in the launch of the MI300, but there is more to come. Management sees the market for AI accelerators, or data center GPUs, reaching $500 billion by 2028. With strong demand for AMD's data center chips helping drive a 31% year-over-year increase in earnings last quarter, you might expect the stock to trade at a high valuation. But it's surprising to see the stock trading at just 24 times 2025 earnings estimates. This is in line with the broader market average valuation and suggests AMD shares might be undervalued. AMD stock is due for a rebound in the new year and could go on to deliver wealth-building returns. Alphabet (GOOG -1.17%) (GOOGL -1.01%) shares have delivered market-beating returns over the last decade. But the search leader continues to report strong growth in revenue and earnings that sent the stock up 36% over the past year. Its investments in AI could fuel more returns for investors in 2025 and beyond. It was a busy year for Google. The company announced new versions of its Gemini AI model, which is powering all of its products. Google also impressed investors recently when it unveiled its Willow chip for quantum computing, showing how the company could be a technological leader in this exploding market. While Google generates most of its revenue from advertising, it relies on AI to deliver relevant search results and content recommendations to keep billions of people coming back to its products, and therefore, grow advertising revenue. Alphabet spent $49 billion in capital expenditures over the last four quarters, which partly goes to data centers and AI to fuel more growth. Alphabet is benefiting from a growing digital advertising market, and this bodes well for profitable growth that can be reinvested in technology. A 15% year-over-year increase in revenue last quarter helped bring Alphabet's trailing-12-month net income to an impressive $94 billion. With Alphabet proving it can post strong financial results while investing in cutting-edge technologies like quantum computing, the stock could be worth much more than its current valuation. The shares can be bought for just 21 times next year's consensus earnings estimate, setting up Google investors for years of solid returns.

3 Artificial Intelligence (AI) Stocks Billionaires Can't Stop Buying Ahead of 2025 | The Motley Fool

Wall Street's top billionaires money managers have picked out their favorite AI stocks for the new year -- and Nvidia didn't make the cut. Over the last two years, no trend has put more pep in Wall Street's step than the rise of artificial intelligence (AI). The ability for AI-driven software and systems to grow more proficient at their tasks, as well as evolve to learn new jobs without the need for human intervention, gives this technology a virtually limitless long-term ceiling. Though growth estimates vary wildly, the analysts at PwC see an addressable market for AI of $15.7 trillion by 2030. According to PwC's Sizing the Prize, increased productivity will boost global gross domestic product by $6.6 trillion, with consumption-side effects adding another $9.1 trillion. This forecast outperformance and sky-high ceiling for artificial intelligence isn't lost on Wall Street or its top investors. Thanks to quarterly filed Form 13Fs, investors can track which AI stocks top money managers have been buying and selling. Based on the latest round of 13Fs, which cover trading activity through the end of September, there are three AI stocks billionaire asset managers clearly want to own heading into 2025. The first AI stock billionaires can't seem to get enough of as we steam ahead into a new year is networking-solutions specialist Broadcom (AVGO -2.55%). Based on 13Fs for the September-ended quarter, billionaires Philippe Laffont of Coatue Management (1,488,666 shares purchased) and Stanley Druckenmiller of Duquesne Family Office (239,980 shares purchased) were buyers. Just as Nvidia (NVDA 0.35%) has become the undisputed top option as a supplier of graphics processing units (GPUs) for businesses wanting to build out AI-accelerated data centers, Broadcom has become a key provider of networking solutions within those data centers. The company's Jericho3-AI fabric is capable of connecting up to 32,000 GPUs, which is essential for maximizing GPU computing capabilities and reducing tail latency. Additionally, Broadcom is ideally positioned to benefit from enterprise demand for its custom AI chips. By fiscal 2027, CEO Hock Tan believes the company's AI revenue could surge to between $60 billion and $90 billion from the $12.2 billion reported in fiscal 2024 (its fiscal year ended Nov. 3). Demand from the company's top hyperscale customers should fuel this growth. Perhaps the most enticing aspect about Broadcom for Laffont and Druckenmiller is that it's far more than just an AI stock. It's a top supplier of wireless chips and accessories used in smartphones, provides a laundry list of optical sensors to the industrial sector, and has a suite of cybersecurity solutions. If an AI bubble were to form, Broadcom would be much better suited than Nvidia to ride out the storm. The big question for these two billionaires is, "Can Broadcom maintain its trillion-dollar valuation?" Although sustainable double-digit growth appears likely, Broadcom is trading at a price-to-sales multiple that's well above its historic average. It's possible we see the company's stock flounder until its valuation becomes more palatable. A second AI stock that billionaire money managers can't stop buying ahead of 2025 is the world's leading chip-fabrication company Taiwan Semiconductor Manufacturing (TSM -0.61%). During the third quarter, billionaire Chase Coleman of Tiger Global Management picked up 564,090 shares, while Duquesne's chief Stanley Druckenmiller scooped up 57,355 shares. Taiwan Semi is being counted on by the AI industry's leading businesses, including Nvidia, to dramatically increase the production of GPUs. Based on recently updated targets following Donald Trump's November victory, Taiwan Semi is aiming for monthly chip-on-wafer-on-substrate (CoWoS) capacity of 35,000 in 2024, 75,000 units in 2025, and 135,000 units in 2026. CoWoS is a necessity for packaging the high-bandwidth memory that supports AI-accelerated data centers. Taiwan Semiconductor Manufacturing should also continue to benefit from lengthy AI chip backlogs. As long as AI-GPU scarcity persists, the company's operating cash flow can remain highly predictable. The big question that billionaires Coleman and Druckenmiller will have to ask themselves is, "How much will Trump's trade policies impact the company?" The incoming president's America first focus and expected reliance on tariffs could lead to challenges for Taiwan Semi, which has between 80% and 90% of its production capacity in Taiwan. Export restrictions of AI chips and equipment to China that were put in place by the Biden administration may also pose a challenge. Similar to Broadcom, Taiwan Semiconductor Manufacturing is no longer the phenomenal fundamental bargain it's been for years. Its price-to-sales (P/S) ratio is 45% above its trailing-five-year average P/S reading, while its forward price-to-earnings (P/E) ratio of 23 represents its highest reading since 2020. It's a somewhat aggressive valuation for a highly cyclical industry. The third artificial intelligence stock select billionaire investors can't stop buying ahead of the new year is e-commerce colossus Amazon (AMZN -1.09%). Four billionaires were buyers in the September-ended quarter, including (total shares purchased in parenthesis): Amazon's AI ties are predominantly based on utilization. Amazon Web Services (AWS) is the world's leading cloud service infrastructure platform, and it's been aggressively incorporating generative AI solutions. Generative AI on AWS can help businesses build AI applications, deploy virtual chatbots and AI assistants, and build/run large language models. Among Amazon's numerous operating segments, none is more important to its cash-flow generation or profits than AWS. Through the first nine months of 2024, AWS accounted for 17.5% of Amazon's net sales, but nearly 62% of its operating income. The juicy margins that typically accompany cloud subscriptions will play a key role in lifting the company's cash flow over time. Amazon is also in the process of developing its own AI chips, known as the Trainium2 and Inferentia. Though Amazon is already using Nvidia's premier GPUs, and it's unlikely that its own chips will rival Nvidia in terms of computing speed, the Trainium2 and Inferentia should be notably cheaper and more easily accessible than Nvidia's sought-after hardware. Similar to Broadcom and Taiwan Semi, the big concern for Mandel, Laffont, Robbins, and Coleman is whether Amazon stock is still a bargain after hitting an all-time high. While traditional fundamental tools like the P/E ratio would suggest Amazon is more than fully valued, the company's price-to-cash-flow ratio implies it still offers upside. At 16 times estimated cash flow for 2025, Amazon is still well below the multiple of 23 to 37 times cash flow investors regularly paid for its stock throughout the 2010s.

Nvidia vs. Broadcom: Which is the better AI chip stock to own in 2025?

When it came to artificial intelligence (AI) infrastructure in 2024, Nvidia (NASDAQ: NVDA) reigned supreme. However, Broadcom (NASDAQ: AVGO) will be looking to challenge the chipmaker in 2025. Both stocks have had strong runs in 2024, with Nvidia's stock up over 170% year to date as of this writing and Broadcom up around 107%. Let's consider which semiconductor stock looks like the better buy heading into 2025. Since the start of the AI boom, Nvidia has been the biggest winner. As the maker of graphics processing units (GPUs) the company's chips became the backbone of AI infrastructure. Training large language models (LLMs) and running AI inference take a lot of computing power, and GPUs have proven to be the best chips for these tasks as they are able to perform many calculations at the same time in what is called parallel processing. Nvidia, meanwhile, became the market leader in GPUs due to its CUDA software platform. The company originally developed the free software to allow developers to program its chips for tasks beyond speeding up the graphics rendering in things like video games, the job for which they were initially created, in order to sell more chips. As a result, CUDA became the program on which developers learned to train GPUs, which is what has helped create the large moat the company sees today. It currently has about a 90% market share in GPUs as a result. The combination of its powerful GPUs and wide moat due to CUDA led the company to see astronomical growth as large tech companies race to develop more powerful AI models. Through the first nine months of its fiscal 2025 ending in January 2025, Nvidia's revenue surged 135% to $91.2 billion, while last quarter its revenue soared 94% to $35.1 billion. With AI models needing exponentially more computing power as they become more advanced, Nvidia's future growth prospects also look promising. In fact, recent iterations of Alphabet's Llama AI model and xAI's Grok model are being trained using up to 10 times as many GPUs as their predecessors. At the same time, Nvidia's hyperscale customers (those that own huge data centers) have indicated they plan to increase their spending on AI infrastructure next year as they see AI as a generational opportunity. For their part, analysts are projecting the company will grow its revenue by just over 50% next year. While Nvidia is dominating the AI chip space, Broadcom is making inroads by helping customers develop custom AI chips. Its application-specific integrated circuits, or ASICs, are designed specifically for a customer's precise needs and can help with improved performance and more efficient power consumption. Alphabet was the first company to use Broadcom's technology and expertise to develop its own custom AI chip. The result is a tensor-processing unit (TPU) called Trillium designed specifically to work within Google's TensorFlow (a software library for AI and machine learning). Alphabet said these TPUs have several features, such as a matrix multiply unit (MXU) and proprietary interconnect topology, that differentiate them from mass-merchant GPUs and make them ideal for accelerating AI training and inference. While there were some reports that Alphabet was looking to just go on its own without Broadcom's help, Broadcom won the design contract for the next generation of Alphabet's TPUs. Meanwhile, the company gained four more custom AI chip customers. Meta Platforms and TikTok owner ByteDance are widely believed to be the company's established customers, while OpenAI and more recently Apple are thought to be recent customer wins. On its latest earnings call, Broadcom said its three largest custom AI chip customers had an addressable market of between $60 billion to $90 billion in fiscal 2027 alone and that they were planning on deploying 1 million of its custom AI chips by 2027. Meanwhile, it said its two newer AI chip customers could add to that total. As a reference, it took Alphabet 15 months to have its custom TPUs designed and deployed within its data centers. While the AI opportunity for Broadcom is large, there is a big difference between an addressable market and expected revenue. The company is also involved in a lot of semiconductor and software businesses outside of AI, which aren't growing as quickly. The company grew organic revenue just 11% last quarter when excluding its acquisition of VMware, and analysts are currently looking for the company to increase its revenue by 18% this fiscal year, ending Oct. 31, 2025, and 14% the year after. Nvidia currently trades at a cheaper valuation than Broadcom with a forward price-to-earnings (P/E) ratio of about 30 compared to over 33 for Broadcom. Meanwhile, Nvidia is currently growing its revenue much faster, which is expected to continue in 2025. In addition, Nvidia holds about $30 billion in net cash, while Broadcom has $48.3 billion in net debt. Broadcom created a lot of hype with its comments on its AI addressable market, which have powered its stock price in December. Meanwhile, Nvidia's stock struggled to close out the year. But while Broadcom grabbed the momentum, Nvidia is now the cheaper stock and it's still expected to grow its revenue much more quickly in the near term. Broadcom management has certainly put some doubt in investors' minds when it comes to who will be the big AI chip winner in the coming years. But Broadcom's gains won't necessarily come at Nvidia's expense. GPUs still have more versatility than custom chips and are still considered the standard. However, companies also want an option other than Nvidia to make sure it doesn't become too powerful. I think both stocks have the potential to be winners in 2025, but I prefer Nvidia at this point given its current superior growth and cheaper valuation. 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. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy. Offer from the Motley Fool: Before you buy stock in Nvidia, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Nvidia wasn't one of them. 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Which AI Chip Stock Is the Better Buy for 2025: Nvidia or Broadcom?

Nvidia is rolling out Blackwell, its next-generation AI chip architecture. Meanwhile, Broadcom is chasing what could be a $90 billion opportunity by 2027. Artificial intelligence (AI) offers many exciting long-term possibilities, but the technology's thirst for computing power is a certainty that's fueled remarkable growth in semiconductors. Chip companies like Nvidia (NVDA -2.09%) and Broadcom (AVGO -1.47%) have soared on the realization that AI is creating billions of dollars in opportunities for each. Since January, both stocks have outpaced the S&P 500, though Nvidia has led the way, up over 180%. Both companies expect big things in 2025. Nvidia is rolling out its successor to its wildly popular Hopper AI chip architecture. At the same time, Broadcom has recently announced significant AI chip deals that should ignite growth for the next several years. Nvidia is arguably the household name in AI among investors. The company's expertise in GPU (graphics processing unit) chips translated well to AI. Nvidia's Hopper accelerator chip architecture became the gold standard for technology companies developing AI, which requires lots of computing power to train on vast amounts of data. The H100 chip remains popular, but Nvidia is rolling out Blackwell chips, the next-generation architecture, to meet the increased demands of smarter AI models. Nvidia CEO Jensen Huang believes Blackwell could be the company's most successful product. Analysts estimate that Nvidia will grow earnings by an average of 38% over the long term, reflecting these high expectations. Broadcom has a long, successful history in semiconductors, specializing in networking and other connectivity applications. However, it's no longer a pure chip business; the company has diversified into enterprise infrastructure software, now representing approximately 41% of total revenue. Broadcom has also become increasingly involved in AI chips. In fiscal year 2024, its AI-related revenue totaled $12.2 billion, a 220% increase from last year. Management recently acknowledged multiple blockbuster deals to develop AI inference chips for prominent AI companies (unnamed but rumored to include OpenAI and Apple) using its XPU (extreme processing unit) chips. Broadcom believes its total AI opportunity could range from $60 billion to $90 billion by 2027, with management predicting a substantial market share. Analysts believe Broadcom's long-term earnings growth will average almost 22% annually. In all, both companies have seemingly found room to thrive in AI. It could come down to the better value between the two Since both companies seem well-positioned for growth, the better buy could boil down to which offers the best bang for your buck. The PEG ratio is excellent for this. It compares a stock's valuation to the company's anticipated growth. The lower the ratio, the better the deal you're getting. For high-quality stocks, I'm generally comfortable buying stocks at PEG ratios up to 2.0 to 2.5. Here is how each company stacks up: NVDA PE Ratio (Forward) data by YCharts Based on these numbers, Nvidia's PEG ratio is 1.2 versus Broadcom's 1.8. Remember, this ratio only tells you how much you pay for potential growth. Estimates are only that, meaning they could change. A company's future earnings volatility could also impact investors' willingness to pay. Nvidia is the better value based on numbers. Still, Blackwell could do better or worse than expected, so there is an argument that Nvidia's a riskier stock than Broadcom, a more diverse business. Is there a winner? This stock is the better buy heading into the new year Since both stocks trade at PEG ratios comfortably below what I consider reasonable, long-term investors can buy either (or both) today. That said, there is a winner. I'd probably opt for Broadcom if both stocks traded at similar PEG ratios because it's less dependent on AI. However, Nvidia and its lower PEG ratio seem to appreciate that risk. A 1.2 PEG ratio is a bargain for most stocks, let alone arguably the world's dominant AI company. It also doesn't seem likely that AI is a fad; there's too much money piling into the sector for that. Meanwhile, Blackwell seems poised to continue Nvidia's dominance, and innovation in AI technology could fuel demand for increasingly complex AI chips beyond that. Therefore, the future looks bright for both companies, but Nvidia is the better buy heading into 2025.

Billionaires Are Buying 2 Stock-Split Artificial Intelligence (AI) Stocks Ahead of 2025 | The Motley Fool

Savvy investors like stock splits for two reasons: They make stocks more accessible by reducing the share price, and they can be roundabout indicators of high-quality companies. That's because forward stock splits are only necessary after significant share price appreciation, which rarely happens to sub-par companies. Not surprisingly, a few hedge fund billionaires in the third quarter bought shares of Broadcom (AVGO -2.55%) and Arista Networks (ANET -1.40%). Both companies recently split their stocks. Other billionaire fund managers also purchased shares of Broadcom and Arista in Q3, but the relative sizing of their positions is much smaller. For instance, Ken Griffin of Citadel Advisors bought both stocks, as did Israel Englander of Millennium Management. Importantly, investors should never buy a stock without understanding the business. Read on to learn more about Broadcom and Arista. Broadcom specializes in semiconductors and infrastructure software. Its semiconductors are used in Ethernet switches and routers (networking equipment), data center storage systems, and mobile devices. Meanwhile, its software addresses cybersecurity, mainframe observability, and data center virtualization. Broadcom has a particularly strong presence in certain semiconductor markets. Its chips are the industry standard in networking equipment. The company has 80% market share, and spending on Ethernet chips is projected to increase at 20% to 30% annually in the next few years, according to JPMorgan Chase. Broadcom is also the leader in high-end, application-specific integrated circuits (ASICs), custom chips purpose-built for specialized use cases like artificial intelligence (AI). Broadcom has 60% market share, and spending on AI accelerators (both custom and graphics processing units (GPUs) is expected to grow at 29% annually through 2030, according to Grand View Research. Broadcom reported reasonably good financial results in fiscal Q4 of 2024, which ended in November. Revenue increased 51% to $14 billion and non-GAAP earnings increased 28% to $1.42 per diluted share. But organic revenue increased just 11%, as the acquisition of virtualization specialist VMware added 40 percentage points to top-line growth. However, insight from CEO Hock Tan on the earnings call sent the stock soaring. Broadcom currently designs custom AI accelerators for three hyperscale companies, reportedly Google parent Alphabet, Meta Platforms, and TikTok parent ByteDance. Tan told analysts that revenue from those companies will increase at least fivefold in the next three years. He also said Broadcom is working with two new hyperscalers, reportedly Apple and OpenAI, that will likely be revenue-generating customers by 2027. That means revenue from custom AI chips could increase much more than fivefold during the next three years, which itself implies substantial market-share gains for Broadcom. Looking ahead, Wall Street expects Broadcom's adjusted earnings to increase at 22% annually through fiscal 2027. That makes the current valuation of 49 times adjusted earnings look tolerable. Patient investors should consider buying a small position today. Arista specializes in high-speed networking. The company sells Ethernet switching and routing platforms that move information through enterprise and cloud data centers, and it augments its hardware with adjacent software for network monitoring, automation, and security. Morgan Stanley sees Arista as the company best positioned to benefit from demand for AI networking. Arista has disrupted the market in two ways. Its core innovation is the Extensible Operating System (EOS), software that runs across its entire hardware portfolio. That single-system approach distinguishes Arista from legacy vendors like Cisco Systems that use multiple operating systems, which makes networking monitoring more complicated. Additionally, Arista relies exclusively on third-party semiconductors. By sourcing chips from companies like Broadcom, Arista can design networking equipment with the latest technologies without investing heavily in semiconductor design. That strategy lets the company focus on its core competency, software development, and it affords customers flexibility in selecting which chips are used in their networking gear. Arista reported solid results in Q3. Revenue increased 20% to $1.8 billion, and non-GAAP earnings increased 31% to $0.60 per diluted share. Management also raised full-year guidance such that revenue is now expected to increase 22% in Q4. Beyond that, the company anticipates 16% revenue growth in 2025. Importantly, Arista is the market leader in high-speed Ethernet switching platforms, which include 100-gigabit switches and faster. Demand for high-speed networking hardware should trend higher as companies invest in AI infrastructure, and Arista is ideally positioned to benefit from that trend. Wall Street expects the company's adjusted earnings to grow at 16% annually through 2027. That consensus makes the current valuation of 52 times earnings look expensive, but investors should still consider buying a small position today. Arista's earnings have grown more quickly than consensus estimates in 12 consecutive quarters.

Billionaire Stanley Druckenmiller Sells Nvidia Stock and Buys Another Stock-Split AI Stock. Does He Know Something Wall Street Doesn't? | The Motley Fool

Nvidia (NVDA 0.39%) has led the artificial intelligence (AI) boom that began with the launch of ChatGPT in November 2022. Its share price has advanced 895% since then, and Wall Street is still very bullish. Currently, 92% of the 62 analysts who follow Nvidia rate the stock a buy, and the median target price of $175 per share implies 30% upside from the current share price of $134. However, billionaire Stanley Druckenmiller -- a former hedge fund manager famous for achieving an annual return of 30% over a 30-year period -- sold his entire stake in Nvidia in the third quarter. At the same time, he started a new position in Broadcom (AVGO 3.15%), another chipmaker that recently conducted a 10-for-1 stock split on the heels of tremendous share-price appreciation. Interestingly, Druckenmiller had 14% of his portfolio in Nvidia just one year ago, which made it the largest holding at the time. Today, Druckenmiller no longer has any exposure to Nvidia, but Broadcom ranks among his top 15 holdings. Does he know something Wall Street doesn't? Nvidia is best known for its graphics processing units (GPUs), chips that perform technical calculations faster and more efficiently than central processing units (CPUs). That lets GPUs accelerate complex workloads, like training machine learning models and running artificial intelligence applications. Nvidia GPUs are the gold standard, with market share in AI accelerators exceeding 80%. However, what truly sets Nvidia apart is vertical integration that spans hardware and software. The company pairs its GPUs with CPUs and networking equipment. CEO Jensen Huang says that full-stack approach lets Nvidia build data center systems with a superior total cost of ownership. Additionally, Nvidia offers the most robust collection of software development tools for accelerated computing in its CUDA platform. The company launched CUDA almost two decades ago, and it now includes hundreds of code libraries and pretrained models that streamline application development across a range of disciplines, from robotics to drug discovery. While numerous chipmakers want to dethrone Nvidia as the leader in AI accelerators, doing so would not only require better chips, but also overcoming nearly two decades of software expertise. Nvidia reported excellent financial results for the third quarter of fiscal 2025, which ended in October 2024. Revenue rose 94% to $35 billion, driven by 112% growth in data center sales and 72% growth in automotive and robotics sales. Meanwhile, non-GAAP earnings more than doubled to reach $0.81 per diluted share. Looking ahead, Wall Street expects Nvidia's adjusted earnings to increase 50% in the next four quarters. That makes the current valuation of 52 times adjusted earnings look quite cheap. This begs the questions: Why did Stanley Druckenmiller sell his entire position? Does he know something Wall Street doesn't? The answer is no. Druckenmiller told Bloomberg in July that he made "a big mistake" by selling Nvidia. Broadcom sells semiconductors and infrastructure software. Its chips have applications in Ethernet switches and routers, data center storage, and mobile devices. For instance, the company has long been the supplier of combined Wi-Fi and Bluetooth chips for Apple iPhones. Meanwhile, its software solutions span cybersecurity, mainframe observability, and virtualization. Beyond wireless chips, Broadcom has secured a strong position in two other semiconductor categories. The company has 80% market share in networking chips and 60% market share in custom AI chips. Spending in both markets is forecast to grow at an annualized 20% to 30% in the next few years as businesses modernize their data center infrastructure. Broadcom reported reasonable financial results in the fourth quarter of fiscal 2024, which ended in November 2024. Revenue increased 51% to $14 billion, and non-GAAP earnings increased 28% to $1.42 per diluted share. Having said that, the acquisition of virtualization specialist VMware added 40 percentage points to revenue growth, meaning organic sales increased just 11%. However, management made two shocking statements on the earnings call. First, AI chip sales to its three unnamed hyperscale customers -- analysts guess Alphabet's Google, Meta Platforms, and TikTok parent ByteDance -- will increase at least fivefold in the next three years. Second, Broadcom believes it will soon add two more big customers -- reportedly Apple and OpenAI -- setting the stage for tremendous AI sales growth. Looking ahead, Wall Street expects Broadcom's adjusted earnings to grow 30% in the next four quarters. The consensus estimate makes the current valuation of 46 times adjusted earnings look reasonable, though not as attractive as Nvidia's price tag. Investors should consider buying a small position in both stocks today.