The artificial intelligence (AI) race is far from over, and plenty of cloud computing capacity still needs to be built to support it. AI isn't even close to being used everywhere yet, and the amount of computing capacity that will be necessary to handle an AI-first economy is hard to imagine.
I think that bodes well for a handful of companies, and those that stand to benefit from increased data center construction top the list of my favorite investments now. I think investors should consider loading up on Nvidia (NVDA +0.90%), Micron Technology (MU +3.96%), and Alphabet (GOOG +1.86%) (GOOGL +1.74%), since these three are bound to benefit from major AI spending increases.
Image source: Getty Images.
Nvidia
Nvidia has been the big name in AI investing since the infrastructure-building boom kicked off in 2023: Its products sit at the center of nearly every data center constructed. Its GPUs have dominated the AI computing market for their flexibility and reliability, and countless companies choose them to run their workloads.
The chipmaker's dominance looks sustainable. It reported an 85% revenue increase last quarter, and Wall Street analysts project nearly 100% growth next quarter. All of that growth is without chip sales to China, and Nvidia could be able to reenter that market in a meaningful way soon.
NASDAQ: NVDA
Key Data Points
As a cherry on top, management has already told investors that it expects $1 trillion in data center capital expenditures (capex) from the big four AI hyperscalers next year, up from $650 billion this year. That's an indication that the data center construction trend is alive and well, which will benefit the other two companies on this list as well. Alphabet has also confirmed this on its end: It told investors to expect "significantly" higher capex in 2027.
Despite its incredible recent results and a rock-solid outlook, Nvidia trades for only 23.7 times forward earnings, just barely over the S&P 500's forward P/E ratio of 21.7.
NVDA PE Ratio (Forward), data by YCharts; PE = price to earnings.
That's a minor premium to pay for one of the best stocks in the market, and with long-term growth tailwinds, it's a no-brainer buy at these levels.
Micron
Micron makes memory chips, which are in huge demand for AI data centers. More specifically, it makes NAND and DRAM memory, which have different use cases in servers. The company and its peers don't have sufficient production capacity to satisfy soaring demand, and constructing new foundries will take time. As a result, memory prices have skyrocketed, boosting Micron's revenue and profits.
NASDAQ: MU
Key Data Points
This trend will likely persist for some time. Micron management told investors that it foresees the "tightness" in the memory chip market lasting beyond 2027. That's great news for Micron investors and will lead to major profit and revenue increases over the next few years.
Trading at a mere 12.3 times forward earnings, it's a top AI stock to buy now.
Alphabet
Micron and Nvidia are both beneficiaries of increased AI infrastructure spending, while Alphabet is one of the companies doing the major spending. In that light, it may seem like an odd inclusion on this list, but it's important to look at the bigger picture.
Alphabet isn't spending hundreds of billions of dollars a year on data centers for the fun of it. Instead, it's building a cloud computing empire where its clients run traditional and AI workloads on its servers. Last quarter, revenues from its Google Cloud segment soared 63% year over year, and with more computing capacity coming online each quarter, I would expect the rapid increases to continue for some time.
NASDAQ: GOOGL
Key Data Points
That will boost the stock over the long term and transform the makeup of the business, since Google Cloud is growing so much faster than every other division. If Alphabet can keep up this growth rate and maintain its profit margins, its heavy spending on AI computing power will be justified, and investors will receive an incredible return. I think Alphabet is one of the best AI hyperscalers to own, and it makes plenty of sense to buy now.
