Every month it seems like one company or another announces it is increasing its budget for artificial intelligence (AI) data centers. Last month, Alphabet released plans for $85 billion in capital expenditures (capex) this year, up from its original 2025 outlook of $75 billion. Not to be outdone, Amazon, a week later, said it increased its capex budget to $118 billion, up from $100 billion.
Big tech's spending is only set to climb higher over the next few years. Market researcher Dell'Oro Group forecasts the top 10 big tech companies will spend over $1 trillion on AI infrastructure in 2028. That's up from about $593 billion this year.
Nvidia has been one of the biggest winners of these companies' spending spree so far. Its GPUs play a crucial role in AI training and inference servers. Demand for its chips has pushed both its volume and pricing higher, and that's reflected in its incredible revenue and profit growth over the last three years. Roughly two and a half years into the generative AI revolution, the company saw its revenue climb another 69% year over year, with profits climbing 57% on an adjusted basis during its most recent quarter.
But Nvidia's strong results of the last three years don't necessarily make the stock a shoo-in to be a great investment over the next three years. In fact, the following three semiconductor stocks look like better investments right now to capitalize on the continued increase in AI spending by big tech.
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1. Marvell Technology
Marvell Technology (MRVL 0.63%) is the chipmaker behind custom AI chip designs from Amazon and Microsoft. Instead of GPUs, these custom chips, called XPUs, are designed to more exact specifications to optimize price performance for large language model training or inference.
The XPU opportunity is growing quickly, as big tech companies look to use more cost-efficient chips and reduce their reliance on Nvidia. Broadcom, another XPU maker, expects its three custom silicon customers to spend $60 billion to $90 billion on chips by 2027. Marvell sees a $55 billion opportunity for its customers by 2028. To put that in perspective, its revenue over the last four quarters totals $6.5 billion.
And Marvell looks poised to capitalize on that opportunity. Microsoft recently upgraded the specifications of its next-generation Maia300 chip, according to a report from Fubon Research. And while that will push out the production timeline until late next year, it also suggests Microsoft will ramp up its production quickly.
Fubon expects 300,000 to 400,000 units ordered for the fourth quarter of 2026, with a similar pace of spending throughout 2027. That could mean $10 billion to $12 billion in annual revenue from a single chip design.
Marvell also designs networking chips for getting the most out of GPUs and XPUs. Networking equipment ensures data moves quickly and efficiently from one server to another. That's essential for getting the most out of the processing capabilities of the expensive servers used for training and running AI systems.
As mentioned, it isn't the only company working with big tech on custom silicon solutions. Broadcom has several high-profile contracts as well, and just as many opportunities to expand its market share as Marvell.
But Broadcom's stock is far more expensive for new investors at the moment. Marvell trades for 27 times forward earnings estimates compared to a multiple of 45 for Broadcom. That makes Marvell a much better option for investors looking to capitalize on the rise of custom silicon.
2. Micron Technology
Micron Technology (MU 3.26%) is one of a handful of suppliers of memory chips. Perhaps the most important type of memory chip for generative AI is called high-bandwidth memory, or HBM. These chips are attached to GPUs, giving the processors access to data with minimal latency.
Micron was a bit late to develop its HBM chips, but it has quickly caught up to the competition, and it's winning some big contracts. AMD tapped Micron to supply the HBM3E chips in its MI355X GPUs, which have shown promising results. AMD's newest chips could be poised to take share of the GPU market from Nvidia by offering competitive price performance.
Micron plans to start production on its HBM4 chips next year, after delivering samples to potential customers in the first half of this year. Management says the new chips offer a 60% performance improvement over its current generation of chips with a 20% reduction in power consumption.
HBM chips have been the biggest driver of Micron's results recently. Sales of HBM increased 50% sequentially, driving overall revenue up by 15% from its previous quarter and 51% from the previous year.
And the continued ramp-up in HBM should drive expanding margins. Management's outlook calls for a 42% gross margin next quarter, up from 39% in its most recent quarter and 28% a year ago.
The company sees very strong profit growth in the near future as GPU and XPU makers continue to buy up its memory chips, but it faces significant risks. Since Micron manufactures its own chips, it spends heavily on tooling and capacity while demand increases. But if demand falls, it could see a sharp drop in profitability. That's exacerbated by the fact that memory chips aren't well differentiated and a customer could easily switch suppliers.
Still, the stock currently trades for just 14 times earnings estimates. At that price, investors are getting a lot of potential. And if AI spending continues to rise as expected, this earnings cycle could extend well into the future, making the current price for Micron Technology a great opportunity for investors.
3. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM 0.77%), known as TSMC for short, is the largest chip fabricator in the world. If Nvidia, Broadcom, Marvell, or anyone else wants a leading-edge chip design produced, they're probably going to work with TSMC. That's because it has some of the best technology in the world. As a result, roughly two-thirds of all silicon manufacturing spending goes to the Taiwanese company.
TSMC's technology lead is supported by a virtuous cycle. Since the company commands a huge share of all spending, it has more money to reinvest in research and development (R&D) and building extra capacity. With more R&D spending, it's able to develop and perfect the next-generation processes faster, and it has the capacity to meet demand for new chips, bringing in even more revenue.
The company recently received several pieces of good news, further improving its competitive position in the industry. First, Intel said it wouldn't offer fabrication services for its newest-generation process. And if it didn't get a major customer under contract for its next-generation process, it would stop developing it entirely. That leaves one less competitor for TSMC as it ramps up its next-generation 2nm process.
And TSMC received an exemption from the Trump administration's 100% tariff on foreign-sourced semiconductors. That exemption was likely due to huge commitments from the company to build factories in Arizona.
Both clear the way for TSMC to ramp up production of its 2nm process, which already has customers lined up. The company is reportedly charging a significant premium over the previous generation 3nm chips. Combined with a quick ramp up in production, it should support strong gross margins as it quickly transitions to the next-generation node.
Despite the recent price gains in the stock on the good news, TSMC shares currently trade for less than 25 times forward earnings. Considering management expects average revenue increases of 20% per year between now and 2029 based on strong AI chip growth, that's still a great price to pay for a company with huge competitive advantages.
