Spending on artificial intelligence (AI) infrastructure is set to see a big boost this year, which will undoubtedly help a number of semiconductor stocks with ties to AI chips.
For example, the big three cloud computing companies -- Amazon, Microsoft, and Alphabet -- budgeted a combined $255 billion in growth capital expenditures (capex), largely related to AI infrastructure, this year. Meanwhile, Meta Platforms announced that it will spend up to $65 billion on AI infrastructure. Not to be outdone, a consortium of companies led by Japan's Softbank and OpenAI committed to spending $500 billion on AI infrastructure in the U.S. over the next few years through Project Stargate.
Let's look at the AI chip companies set to reap the benefits.
Nvidia
Nvidia (NVDA +2.59%) is the leader in graphics processing units (GPUs), which are the main chips used in AI training and inference due to their superior processing speeds. The chips were originally designed to help speed up graphics rendering in video games. But later, the company let customers program the chips for other tasks through its CUDA software program. Today, through its CUDA X platform, which was built on top of CUDA, it offers GPU-accelerated microservices and libraries designed specifically for AI.
NASDAQ: NVDA
Key Data Points
CUDA helped give Nvidia customers a superior experience and created a wide moat for the company. This can be seen in its approximately 90% market share in the GPU space. As such, the company is poised to be one of the biggest winners from increased AI infrastructure spending.
In addition, the stock is attractively priced, trading at a forward price-to-earnings (P/E) ratio of 25 times 2025 analysts' estimates and a price/earnings-to-growth (PEG) of 0.5, with PEGs below 1 considered undervalued.
Broadcom
While Nvidia is the leader in mass merchant GPUs, Broadcom (AVGO +4.69%) has become the leader in helping customers design their own custom AI chips. While these application-specific integrated circuits, or ASICs, lack the flexibility of GPUs, they generally have better performance and more efficient power consumption for the specific task for which they were designed.
Broadcom's first custom AI chip customer was Alphabet, as it helped it design its tensor-processing unit (TPU) called Trillium. Since then, it added other customers that are believed to include Meta Platforms, ByteDance, OpenAI, and most recently, Apple. Broadcom noted that just its top three customers could deploy up to 1 million AI chips in 2027, representing a $60 billion to $90 billion revenue opportunity in 2027. While Nvidia will likely get a nice piece of that revenue with its GPUs, Broadcom also has a huge opportunity as well.
NASDAQ: AVGO
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In addition, Broadcom also makes components needed for AI infrastructure such as switches and NICs (network interface cards). The stock is reasonably priced at a 30 times forward P/E.
Image source: Getty Images.
Advanced Micro Devices
While Advanced Micro Devices (AMD +3.50%) is a distant second to Nvidia in the GPU space, the company carved out a niche with its GPUs for AI inference. As AI continues to grow, so will this market.
However, where AMD shines is with its central processing units (CPUs) designed for data centers. While GPUs provide the power, CPUs provide the brains. Its EPYC CPUs continued to gain market share in the data center space. Last quarter, it said its market share was well above 50% at hyperscalers, which are companies that operate massive data centers.
NASDAQ: AMD
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While the number of CPUs used in AI infrastructure is not nearly as many as the number of GPUs, they still play an important role, and this part of AMD's business should continue to grow. Meanwhile, its CPUs have also been gaining share in the personal computer (PC) space as well. The company should see good AI-related growth from both its CPU and GPU offerings.
Trading at 24 times 2025 analyst estimates, the stock is attractively valued given the opportunity ahead of it.
Taiwan Semiconductor Manufacturing
With more AI chips will come more chip manufacturing, which is where Taiwan Semiconductor Manufacturing (TSM +1.40%), or TSMC, steps in. The company is the leading semiconductor contract manufacturer in the world, counting companies like Apple, Nvidia, and Broadcom among its top customers.
Chip manufacturing is not an easy process, and TSMC has become the clear leader and a valued partner to its customers in the chip-making process. With competitors such as Intel and Samsung struggling, TSMC garnered strong pricing power over the years and is slated to see a price increase this year as well. This led to both strong revenue growth as well as improving margins, which is a great combination.
NYSE: TSM
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In addition, TSMC continues to expand its manufacturing capacity by building new foundries (chip-manufacturing plants) to keep up with demand. New facilities in Arizona and Japanese went online in Q4, and it currently has plans to build two more facilities, one in Arizona and one in Germany.
Meanwhile, the stock is cheap, trading at a forward P/E of 22 times and a PEG of under 0.8.
