With trade tensions easing, stocks have rallied and are looking to potentially head into their next bull run. After leading the last bull market higher, artificial intelligence (AI) stocks seem to have regained their footing and could be ready to lead again.
Let's look at three AI stocks ready for a bull run.
Image source: Getty Images.
1. Nvidia
Where AI infrastructure spending goes, Nvidia (NVDA 1.68%) is sure to follow. It's both the biggest risk the company faces and its biggest opportunity.
The stock pulled back after the Trump administration enacted some tougher export restrictions for AI chips going into China, but trade deals with Middle Eastern countries that included investments in AI infrastructure eased investor concerns. Sovereign AI, or government AI spending, could be the next big driver of spending on the technology.
This would be on top of the strong spending already being seen from cloud computing companies and companies training foundation AI models, such as OpenAI and Meta Platforms.
With an over 80% market share in the graphics processing units (GPUs), Nvidia is very well positioned to continue to benefit from ongoing AI infrastructure spending. Meanwhile, its CUDA software platform and its collection of AI-focused libraries and tools that help streamline development and optimize the performance of its chips give it a wide competitive moat in the space.
The stock is still reasonably valued with a forward price-to-earnings ratio (P/E) of 31 times this year's analyst estimates and a 0.6 price/earnings-to-growth ratio (PEG), with numbers below 1 considered undervalued.
2. Broadcom
Another company well-positioned to benefit from increased AI infrastructure spending is Broadcom (AVGO 1.38%). The company makes components that are crucial parts of data center infrastructure.
It also has carved out a sizable niche in helping customers develop custom AI chips known as ASICs (application-specific integrated circuits). While GPUs are more readily available and offer more flexibility, custom AI chips can offer better performance for the specific task for which they were designed while reducing power consumption.
There are considerable up-front costs involved in designing these custom chips, but they can help lower the overall cost of ownership over time for customers, given that they are more energy efficient.
Custom AI chips are Broadcom's biggest opportunity, and it has been gaining customers. It said it sees a $60 billion to $90 billion market opportunity in its fiscal year 2027 (ending October 2027) from its three customers that are furthest along.
Meanwhile, it has picked up added customers, including Apple, that are not included in those projections. It won't capture all of this business, but it is a huge opportunity for the company.
Trading at a forward P/E of 29 times analysts' fiscal 2026 estimates, the stock is attractively valued given the huge potential ahead. The biggest risk would be if AI infrastructure spending were to slow down.
3. Taiwan Semiconductor Manufacturing
While Nvidia and Broadcom design AI chips, Taiwan Semiconductor Manufacturing (TSM 0.85%) is the company that actually makes them. It is the leading semiconductor contract manufacturing in the world and counts companies like Nvidia, Broadcom, and Apple among its top customers.
Semiconductor manufacturing is a complex process that requires technological expertise, high utilization rates, and scale. Foundries are always looking to become more efficient by increasing the functional size of their wafers through advanced packaging technologies and shrinking chip sizes. Smaller chips are more powerful and consume less energy.
TSMC, as the company is also known, leads the way in manufacturing advanced chips and has become an invaluable partner to its customers. As the clear leader in the space, it has garnered strong pricing power. At the same time, it is working closely with its largest customers to expand its manufacturing capacity to meet their future needs.
Increased capacity and higher prices are a powerful combination that has helped TSMC achieve strong revenue growth and expand its gross margins. Last quarter, its revenue climbed 35% to $25.5 billion, while its gross margin expanded 190 basis points to 58.8%.
Its new U.S. production facilities are expected to be a gross margin headwind, although it apparently is looking to raise prices from its Arizona site by 30% to help offset the higher costs. It's also looking to raise its overall prices by 10%.
Trading at a forward P/E of 21 times 2025 analyst estimates and a PEG of 0.6, the stock is cheap. Similar to its two AI chip customers, the biggest risk TSMC faces would be a slowdown in AI infrastructure spending, as this would lead to less demand for chips.
