The $250 billion data center market is expanding, driving the growth curve of leading semiconductor companies. Building out artificial intelligence (AI) infrastructure will require significant upgrades in processors and data storage components to build a new generation of AI-optimized data centers.
Here are two leading chip stocks experiencing strong growth that can help you take advantage of this lucrative opportunity.
1. NVIDIA
The market for data center chips is exploding as the largest data center operators, or hyperscalers, are undergoing a long-term upgrade to semiconductors and components for AI, which requires very powerful graphics processing units (GPUs). (NASDAQ: NVDA) It is a major supplier.
Nvidia’s revenue more than doubled year over year to $30 billion last quarter, and the higher margins these advanced chips are driving are having a big impact on Nvidia’s bottom line, with earnings per share up 168% year over year.
While Nvidia’s growth rate will slow from this robust level, GPU spending projections suggest it will grow at double-digit rates for the next few years. Dell’Oro Group projects the market for GPUs and other AI accelerators to grow at an annual rate of 38% over the next five years.
Comments from major hyperscalers suggest those estimates are accurate. Meta Platforms is investing billions of dollars in AI infrastructure, including Nvidia GPUs for its data centers. “Our continued investments in core AI capabilities build on the significant gains we’ve seen to date and expect to deliver in the future by enabling greater relevance of recommended content and advertising on our platform,” CFO Susan Li said during Meta’s second-quarter earnings call.
Alphabet’s Google is one of several hyperscalers investing heavily in AI technology — AI is crucial to its Google Cloud services, search algorithms and YouTube recommendations — and the company believes the risks of underinvesting in AI infrastructure are far greater than the risks of overinvesting.
For these reasons, Wall Street analysts expect Nvidia’s revenues to grow at a high rate over the next few years. As Nvidia’s stock price history shows, ups and downs are inevitable, but the potential gains are too big to overlook.
2. Micron Technology
Micron Technology (Nasdaq: MU) Memory and storage products will also benefit from data center expansion. GPUs are a building block, but these powerful processors are useless if data centers don’t have the ability to store and retrieve data to train AI models.
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Micron is one of the leading suppliers of high-bandwidth memory modules and solid-state storage drives. The company’s revenue fluctuates with memory price fluctuations, but it is currently benefiting from increased data center investments, with revenue increasing 81% year over year in the most recent quarter.
Looking ahead, Micron expects revenue trends to be more favorable as demand for AI-enabled PCs and smartphones grows, benefiting the business. Management expects record revenue in fiscal year 2025 (ending August 2025).
The company’s shares have fallen to about $96 after hitting a high of $157 this year. Wall Street is concerned that Micron and its rivals could overinvest in memory supplies to meet demand, putting pressure on selling prices and profits.
However, Micron’s annual revenue has been on the rise for the past few years, and training AI models requires more and more data, which in turn creates greater demand for storage and memory bandwidth, ultimately benefiting Micron. Investing in Micron is essentially a bet on the long-term growth of data consumption in the economy.
The best time to buy Micron stock is when the stock price is declining. Analysts expect earnings per share to reach $12.40 in fiscal 2026, which would be a new record for the company. Investors should expect the stock price to return to its previous highs within the next few years, with a potential upside of 50% or more.
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Randi Zuckerberg, former director of market development and public relations at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Ballard has invested in Meta Platforms and Nvidia. The Motley Fool has invested in and recommends Alphabet, Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
2 Monster Semiconductor Stocks to Buy Now was originally published by The Motley Fool.
