The world’s largest technology companies are spending billions to build data centers, equipping them with graphics processing chips (GPUs) designed for artificial intelligence (AI) development.
GPUs are built for parallel processing and can process large amounts of data and multiple workloads at once. This is the key to training AI models and performing AI inference. Based on recent financial reports:
Microsoft spent $55.7 billion in capital expenditures (Capex) in fiscal year 2024 (ending June 30), most of which went to AI datacenter infrastructure and chips.
Amazon spent $30.5 billion in capital spending in the first half of 2024, much of it related to AI.
Alphabet spent $25 billion in AI capital spending in the first half of 2024.
Meta Platforms plans to spend $37 billion to $40 billion in AI capital spending throughout 2024.
Oracle spent $6.9 billion in AI capital expenditures in fiscal 2024 (ending May 31).
Microsoft, Amazon, Meta, and Oracle have all vowed to spend even more money next year. This presents an opportunity for the semiconductor industry, so here are the top five chip stocks to buy heading into 2025.
1. Nvidia
When it comes to data center GPUs, Nvidia (NASDAQ:NVDA) He is a leader that everyone recognizes. The company’s H100 GPU set the benchmark for the AI industry last year, and the company is now preparing to ship an entirely new generation of chips based on the Blackwell architecture.
Blackwell-based systems like the GB200 NVL72 run AI inference up to 30 times faster than comparable H100 systems. Additionally, individual GB200 GPUs are expected to sell for $30,000 to $40,000 each, which is in line with what data center operators originally paid for the H100. In other words, Blackwell opens the door to significant cost efficiencies for developers who typically pay by the minute for computing power.
Nvidia CEO Jensen Huang expects Blackwell GPUs to start contributing billions of dollars to the company’s revenue in the final quarter of fiscal 2025 (November to January), with shipments ramping up from there. Masu.
Nvidia is expected to generate an estimated total revenue of $125.5 billion in fiscal year 2025, representing a 125% increase over the previous year. The company’s stock price is not cheap, but it trades at a reasonable forward price-to-earnings ratio (P/E) of 29.1 times the company’s 2026 estimated earnings per share.
Simply put, investors looking to hold onto Nvidia stock for at least the next 18 months may be paying a reasonable price right now.
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2. Micron Technology
micron technology (NASDAQ:MU) is a leading supplier of memory and storage chips for data centers, personal computers, and smartphones. In an AI datacenter setting, memory chips complement GPUs by storing data in a ready state and can be immediately recalled for training or inference. As AI requires large amounts of data to learn and improve, the demand for more memory capacity is skyrocketing.
Micron’s latest HBM3E (High Bandwidth Memory) 36 gigabyte (GB) unit for data centers provides up to 50% more capacity than current competitors while consuming 20% less energy. It was chosen to power Nvidia’s H200 GPU, and potentially the Blackwell GB200 GPU as well. In fact, Micron is completely discontinuing HBM3E by 2026.
Beyond the data center, Micron’s LP5X DRAM memory is used by all Tier 1 manufacturers of Android-based smartphones. Many are launching AI-enabled devices this year, with minimum memory requirements that have doubled compared to last year’s non-AI predecessors. There’s a similar trend in personal computing, where most AI-enabled PCs now launch with a minimum DRAM capacity of 16 GB, up from 12 GB last year.
Increased memory requirements directly translate into increased revenue for Micron. In its most recent fiscal fourth quarter of 2024 (ending Aug. 29), the company’s revenue reached $7.7 billion, a 93% year-over-year increase, and it expects to do even better going forward.
3. Axcelis Technologies
Axcelis Technologies (NASDAQ:ACLS) We are not a semiconductor manufacturer. Instead, it manufactures ion implanters that are essential to the manufacturing process for central processing units (CPUs), memory chips, and power devices that regulate the flow of power in high-current applications.
AI data centers consume large amounts of energy, creating new opportunities for power device manufacturers (and Axcelis equipment). Some of Axcelis’ customers have begun using trench MOFSET (metal-oxide-semiconductor field-effect transistor) power devices using silicon carbide chemistry, which is more robust and thermally efficient than traditional silicon chemistry. Silicon carbide power devices have high implant usage, which is a direct tailwind for Axcelis’ business.
Additionally, Axcelis is also benefiting from the growing demand for high-capacity memory chips in data centers, computers, and smartphones. The company has already started building inventory in anticipation of a strong 2025, as more Axcelis equipment will be needed as memory chip makers ramp up production to meet demand.
In fact, Axcelis’ guidance suggests that 2025 could be the strongest year in the company’s history, with record revenue of $1.3 billion.
4.Broadcom
broadcom (NASDAQ:AVGO) is a multifaceted AI organization with presence in semiconductors, equipment, cybersecurity, cloud software, and more. The company’s semiconductor business is currently attracting attention from investors. That’s because some of the company’s products are in high demand from companies building AI infrastructure.
Broadcom makes AI accelerators (data center chips) for hyperscale customers (typically Microsoft, Amazon, Alphabet, etc.). In the recent third quarter of fiscal 2024 (ending August 4), the company announced that its business grew a whopping 3.5 times compared to the same period last year. Similarly, sales of Tomahawk 5 and Jericho3-AI Ethernet switches for data centers increased fourfold. These control the rate at which data flows from one point to another.
Entering the third quarter, Broadcom expected total revenue of $51 billion in fiscal 2024, with $11 billion of that coming from AI. However, given the strong performance highlighted earlier, the company revised these numbers upward to $51.5 billion and $12 billion, respectively.
Broadcom is now knocking on the door of a $1 trillion exclusive club that is home to just six of America’s biggest technology companies.
5. Advanced Micro Devices (AMD)
advanced micro device (NASDAQ: AMD) is one of the world’s leading chip suppliers in the consumer electronics industry. Its hardware is used in everything from Sony’s PlayStation 5 to Tesla’s electric car infotainment systems. However, the company is now looking to compete with Nvidia in the data center space with its new MI300 GPU.
The MI300 is designed as a replacement for Nvidia’s H100 and has attracted top customers such as Oracle, Microsoft, and Meta Platform. However, AMD is already gearing up to release a faster GPU called MI350 next year, as Nvidia is set to launch its Blackwell lineup. It is based on a new architecture called Compute DNA (CDNA) 4, which can deliver 35 times more performance than CDNA 3 chips like the MI300. AMD intends this architecture to compete directly with Blackwell.
AMD is already the leader in AI chips in personal computing, with an estimated market share of 90%. The company recently launched the Ryzen AI 300 series of notebooks with the industry’s fastest Neural Processing Unit (NPU). The company says it plans to launch more than 100 platforms powered by chips from major PC manufacturers such as Asus, Acer and HP Inc.
AMD is on track to see an impressive 115% year-over-year growth in data center revenue in the second quarter of 2024, and a 49% increase in client segment revenue (powered by Ryzen AI chips). But the AI revolution is far from over. I’m still warming up, so the best may be yet to come.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and 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. Anthony Di Pigio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, HP, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
5 Super Semiconductor Stocks to Buy for 2025 Originally published by The Motley Fool
