The semiconductor industry has received a major shot in the arm from the rapid advancement of artificial intelligence (AI) technology: The size of the semiconductor market jumped by an estimated 19% last year to $630 billion, according to Gartner. That was a huge turnaround from its 12% decline in 2023.
The good news for investors is that the semiconductor industry is expected to enjoy another year of double-digit percentage growth in 2025, generating an estimated $717 billion in revenue. Data center operators have been among the biggest purchasers of AI chips so far -- those cloud computing majors have been loading up on powerful parallel processors so that they'll be equipped to allow their clients to train and deploy large language models (LLMs).
At the same time, the adoption of AI chips in edge devices such as smartphones and personal computers (PCs) is set to increase in 2025. So, it won't be surprising to see the chip market clocking strong growth this year once again. That's why it seems like a good time to take a closer look at the prospects of three companies that are benefiting big time from the booming demand for AI chips in various sectors.
AI-capable edge devices could give these stocks a nice boost in 2025
Advanced Micro Devices (AMD 0.79%) and Qualcomm (QCOM 2.55%) delivered underwhelming gains in 2024 compared to the 24% jump clocked by the PHLX Semiconductor Sector index, but they could witness remarkable turnarounds in their fortunes this year.
That's because both companies are on track to benefit from the big bump in sales of AI-capable edge devices. On-device AI capability means that these devices will be able to tackle some AI workloads locally rather than having to offload them to the cloud. More specifically, smartphones and PCs will be equipped with dedicated AI engines to carry out AI-specific tasks.
AMD and Qualcomm have already deployed chip platforms equipped with dedicated AI engines. At CES 2025, AMD announced that it is expanding its portfolio of AI-capable Ryzen CPUs for both the commercial and consumer markets. Its new Ryzen AI processors come with a neural processing unit (NPU) capable of clocking 50 trillion operations per second (TOPS), sufficient to power next-generation AI PCs.
NASDAQ: AMD
Key Data Points
AMD clients such as Dell, Asus, HP, Lenovo, and MSI will be rolling out notebooks and computers powered by Ryzen AI processors. Meanwhile, Qualcomm has set its sights on the AI PC market with its Snapdragon X Series CPUs. In a recent press release, Qualcomm said that "Snapdragon X Series continues to gain traction with now over 60 designs in production or development with more than 100 coming by 2026 from leading OEMs including Asus, Acer, Dell Technologies, HP, and Lenovo."
With sales of AI PCs expected to jump by a remarkable 165% in 2025, both AMD and Qualcomm could benefit from the secular growth of this market. Qualcomm, however, has an additional catalyst in the generative AI smartphone market. Market research firm IDC expects sales of generative AI smartphones to jump 73% in 2025. Qualcomm is in a terrific position to make the most of this opportunity. As Counterpoint Research notes, the chipmaker captured half of the market for generative AI smartphone chipsets in 2024.
Finally, both Qualcomm and AMD are trading at attractive valuations.
While Qualcomm is trading at 14 times forward earnings, AMD has a forward price-to-earnings ratio of 23. So, investors today can get a great deal on two AI chip stocks that seem set to gain big time from the growing demand for AI-enabled smartphones and PCs in 2025.
Data center chip demand will give this name a nice boost
The proliferation of devices capable of running some AI workloads and the arrival of AI agent systems that are able to execute tasks autonomously are likely to meaningfully increase the computing load on data centers. This is probably why market research firm TrendForce expects investments in AI servers to jump to $298 billion in 2025. That would be a 45% increase from the $205 billion spent on that infrastructure last year.
As a result, the demand for AI chips that Nvidia (NVDA 2.13%) sells should continue to expand. The AI pioneer is currently rolling out its latest generation of Blackwell data center GPUs (graphics processing units), which are said to be four times faster than its previous-generation Hopper processors. Nvidia has been aggressively expanding production capacity for its Blackwell processors in an effort to meet customers' demand.
NASDAQ: NVDA
Key Data Points
This explains why consensus estimates are projecting the company will generate almost $171 billion in data center revenue in its fiscal 2026 (which will begin toward the end of this month and include 11 months of calendar 2025). That would be a massive increase over the estimated data center GPU revenue of $97.6 billion from its fiscal 2025.
However, analysts' estimates for Nvidia's overall revenue for fiscal 2026 have moved significantly higher.
NVDA Revenue Estimates for Next Fiscal Year data by YCharts.
So the possibility of the company blowing past Wall Street's expectations cannot be ruled out, especially considering that its foundry partner is set to increase its capacity to manufacture AI chips significantly in 2025. With shares of Nvidia trading at an attractive 32 times forward earnings right now as compared to the tech-laden Nasdaq-100 index's earnings multiple of 32.5, buying Nvidia looks like the right thing to do right now, particularly given the 52% bottom-line growth the chipmaker is expected to deliver in the upcoming fiscal year.
