Artificial intelligence (AI) has already started to demonstrate its usefulness, driving efficiency, cost savings, and innovation at companies. Some investors bet on this market early and have won big as certain companies developing or using AI have seen their revenue and stock prices soar. In fact, AI has been a huge driver of market performance over the past few years, helping the S&P 500 climb 78% over three years.
And though momentum has slowed these days amid general market volatility and concerns about the war in Iran, I don't believe the AI story is over. Tech giants are spending big to ramp up infrastructure to meet demand. And my prediction is that the following AI stock will be the biggest winner of the $660+ billion capital spending boom.
Image source: Getty Images.
Heading toward $4 trillion
So, first, a quick look at the spending that's happening now and into the future. This year alone, tech giants including Microsoft, Alphabet, Amazon, and Meta Platforms have pledged to spend more than $660 billion on the build-out of AI infrastructure. Jensen Huang, chief executive officer of AI chip powerhouse Nvidia, has predicted that AI infrastructure spending by the end of the decade may reach as much as $4 trillion.
This involves building out data centers, furnishing them with the elements they need to do the AI job, from chips to data storage, cables, and networking equipment. A number of companies are well-positioned to benefit from this movement, but the biggest winner of all may be a company that works closely with not one, but all of the top chip designers.
I'm talking about Taiwan Semiconductor Manufacturing (TSM +2.02%). While companies such as Nvidia and Advanced Micro Devices design top chips for AI, they don't actually produce them. Instead, they turn to TSMC to do that job. This means that TSMC doesn't just benefit from the gains of one chip designer but from the gains of many.
NYSE: TSM
Key Data Points
The AI boom continues
And this is a great spot to be in as the AI boom marches on. That's because all of the major chip designers have been speaking of strong demand in recent quarters, and this is likely to continue, considering the current and potential uses for AI. As companies aim to build AI platforms, they will need the compute to do so and therefore will turn to chip designers -- and that creates business for TSMC.
In the latest earnings report, the chip manufacturer delivered double-digit revenue growth and said it believed in the long-term AI growth story due to the trends it's observed. All of this supports my prediction that TSMC will be the biggest winner of this AI infrastructure spending boom.
