The Nasdaq Composite index has been on a stellar run over the past month, gaining 14% as of this writing. Investors seem to have regained confidence in technology stocks, following the turmoil caused by the Middle East conflict in March.
The ongoing negotiations between the U.S. and Iran to reopen the Strait of Hormuz and the possibility of a peace plan to end the war have positively impacted tech stocks of late. It won't be surprising to see the Nasdaq's rally gain momentum during the ongoing earnings season. That's because the tech sector is expected to clock 45% earnings growth in Q1.
The earnings growth expectation of the tech sector jumped over 10% since the beginning of the year, driven primarily by the strong growth that artificial intelligence (AI) companies have been clocking this year. That's why it is a good time to buy top AI stocks, such as Broadcom (AVGO +2.57%) and ASML (ASML +4.03%), before the Nasdaq heads higher.
Image source: ASML.
Custom AI chip demand is going to be a huge tailwind for Broadcom
Broadcom stock has shot up an impressive 34% over the past month. It's quickly becoming one of the top AI chip stocks to buy due to booming demand for its application-specific integrated circuits (ASICs), which are custom AI processors deployed in data centers to run AI workloads cost-effectively.
NASDAQ: AVGO
Key Data Points
These custom AI chips have gained prominence for their efficiency in performing AI inference. Custom chips designed for AI inference can lower operating costs, reduce power consumption, and perform their intended tasks more efficiently. This explains why Broadcom saw robust demand for custom AI processors from Meta Platforms, Anthropic, and OpenAI.
Broadcom announced in April that it is deepening its relationship with Meta to develop custom AI chips for its AI data centers. Before that, AI start-up Anthropic announced that it will build AI infrastructure in collaboration with Broadcom and Google (Alphabet) through 2031. These deals tell us why Broadcom is confident it can achieve more than $100 billion in AI chip revenue in 2027.
That points toward a significant acceleration, as Broadcom generated $8.4 billion in AI chip revenue in the first quarter of fiscal 2026 (which ended on Feb. 1). So, it is easy to see why analysts have become bullish about Broadcom's earnings growth and are expecting its bottom line to double in just two years.
Data by YCharts.
This outstanding growth is likely to drive further upside in Broadcom's stock price if it trades in line with the Nasdaq-100 index's earnings multiple of 34 over the next three years. So, it isn't too late for investors to buy this semiconductor stock.
ASML is a great pick-and-shovel AI infrastructure stock
ASML Holding's extreme ultraviolet (EUV) lithography machines are in high demand as they help foundries and chipmakers produce advanced chips that power AI data centers and consumer electronics applications such as smartphones and personal computers (PCs), among other things.
NASDAQ: ASML
Key Data Points
This explains why ASML decided to ramp up the production of its EUV machines in 2026 and 2027. The company generally manufactures around 40-50 EUV machines a year. It expects to build at least 60 of its low-NA EUV machines this year, each costing more than $180 million. The company intends to make at least 80 units of these machines in 2027.
The jump in ASML's output explains why analysts have raised their revenue growth expectations from the company.
Data by YCharts.
ASML's 2025 revenue stood at $37 billion, indicating its top line is on track to grow by over 20% over the next couple of years. Don't be surprised to see ASML maintain such healthy growth through the end of the decade, especially given that demand for leading-edge nodes (which are smaller than 7 nanometers) could increase at an annual rate of 22% through 2030, according to McKinsey.
As ASML is the only company whose EUV lithography machines help manufacture leading-edge chips, it is well-positioned to capitalize on the secular end-market opportunity. So, investors looking for the ultimate AI pick-and-shovel play should take a closer look at ASML stock, which has more upside to offer after rising 33% so far this year.
