Artificial intelligence (AI) is expected to impact the global economy in a big way in the long run, with market research firm IDC estimating that every dollar spent on AI-related business solutions and services will generate $4.60 in the global economy in 2030.
The research firm says AI spending has the potential to account for 3.5% of the global gross domestic product (GDP) in 2030. So now is a good time for investors to take a closer look at some of the top names in this sector that seem well placed to make the most of this massive opportunity.
Buying and holding solid companies that can benefit from disruptive growth trends such as AI could help investors get richer in the long run. For instance, an investment of just $4,000 in shares of AI pioneer Nvidia a decade ago is now worth more than $1.1 million. Of course, not every stock can replicate Nvidia-like gains -- and there's no way to know what will happen with Nvidia or any other company over the long term -- but the economic potential of AI means that companies serving this sector could contribute toward a diversified million-dollar portfolio in the long run.
Here's why I think investors have a shot at becoming millionaires with Dell Technologies (DELL +1.79%) and Taiwan Semiconductor Manufacturing (TSM +1.97%), two companies that are playing a critical role in the proliferation of AI.
1. Dell Technologies
Dell has made its name selling personal computers (PCs), peripherals, and server equipment, and AI is set to give these segments a big boost. The AI server market, for instance, is expected to generate a whopping $837 billion in revenue in 2030, clocking a compound annual growth rate (CAGR) of 34% through the end of the decade.
NYSE: DELL
Key Data Points
And Dell is already benefiting from this fast-growing opportunity. Revenue from the company's infrastructure solutions group (ISG) shot up an impressive 34% year over year in the quarter ended Nov. 1. Sales of networking equipment and servers played a key role in this impressive growth, with revenue from this subsegment jumping 58% year over year.
Dell's AI server business seems set to sustain its impressive growth. The company sold $2.9 billion worth of AI servers in the previous quarter, and received fresh orders worth a record $3.6 billion for its AI servers during the most recent quarter.
Given that AI server revenue is expected to boom substantially over the next five years, there is a solid chance that Dell's revenue from this segment will take off big time.
Some estimates see Dell's AI server revenue hitting at least $20 billion in fiscal 2026, which begins next month. That would be an improvement of 94% from fiscal 2025 levels.
It is worth noting that the $20 billion estimate does not account for any market share gains, so things could actually be better.
So, Dell seems all set to become a bigger player in the lucrative AI server market in the long run, and that could supercharge the company's growth over that time. Given that Dell is trading at just 19 times trailing earnings right now, buying this AI stock looks like a no-brainer move.
2. Taiwan Semiconductor Manufacturing
While Nvidia and Broadcom have been hogging the limelight in the AI accelerator market, investors should note that Taiwan Semiconductor Manufacturing (TSMC) is the foundry that manufactures the data center chips they design. In fact, TSMC's customer base includes consumer electronics giants such as Sony and Apple, along with smartphone chipmaker Qualcomm and PC and server chip company AMD.
NYSE: TSM
Key Data Points
This diversified customer base means that TSMC is set to gain from multiple AI-related end markets. Not surprisingly, the company believes it is on track for healthy growth over the next five years. TSMC's fourth-quarter 2024 results handily beat Wall Street's expectations, while its guidance was also better than what analysts were looking for.
Following a 37% year-over-year increase in its Q4 revenue to $26.9 billion, TSMC is forecasting a 34% year-over-year jump in in the current quarter to a midpoint of $25.4 billion. Even better, TSMC estimates that it could finish 2025 with a mid-20% increase in revenue, driven by a jump in its revenue from AI accelerator chips that the likes of Nvidia, AMD, and Broadcom design.
What's more, TSMC management added on the latest earnings conference call that it expects "the revenue growth from AI accelerators to approach a mid-40% CAGR for the five-year period starting off the already higher base of 2024." So, AI is all set to remain a key catalyst for the company over the next five years, which is why TSMC is confident of clocking a five-year revenue CAGR of 20%.
Investors should also note that TSMC commands the lion's share of the foundry market with a share of 64%, which is way ahead of second-place Samsung's 12%. This gives TSMC immense pricing power, which explains why the company is expected to increase the price of its silicon wafers by 10% this year.
TSMC's robust revenue growth is likely to be accompanied by stronger earnings growth as well, which could lead the market to reward it with a higher stock price. All this makes TSMC a solid stock that could very well fit into a potential million-dollar portfolio, especially considering that it is trading at an attractive 24 times earnings estimates even though it has shot up 105% in the past year.
