The growing $250 billion data center market is lengthening the growth curve for top semiconductor companies. The buildout of artificial intelligence (AI) infrastructure will require major upgrades in processors and data storage components to build a new generation of AI-optimized data centers.
Here are two leading chip stocks experiencing robust growth that can help you cash in on this lucrative opportunity.
1. Nvidia
The market for data center chips is exploding. The largest data center operators, or hyperscalers, are in a long-term process of upgrading semiconductors and components for AI, which requires extremely powerful graphics processing units (GPUs), and Nvidia (NASDAQ: NVDA) is the leading supplier.
Nvidia's revenue more than doubled year over year last quarter to $30 billion. The high margins these advanced chips command are also causing a windfall on Nvidia's bottom line, with earnings per share surging 168% over the year-ago quarter.
Nvidia's rate of growth will slow from these robust levels, but the outlook for GPU spending suggests it will grow at double-digit rates for several years. Dell'Oro Group projects the market for GPUs and other AI accelerators will grow at a 38% annualized rate over the next five years.
Comments from leading hyperscalers suggest these estimates are on the money. Meta Platforms is investing billions in AI infrastructure, including Nvidia GPUs, for its data centers. "Our ongoing investment in core AI capacity is informed by the strong returns we've seen and expect to deliver in the future as we advance the relevance of recommended content and ads on our platform," CFO Susan Li said on Meta's Q2 earnings call.
Alphabet's Google is another hyperscaler investing a fortune in AI technology. AI is mission-critical to its Google Cloud service, search algorithms, and recommendations on YouTube. Google believes the risk of underinvesting in AI infrastructure is far greater than the risk of overinvesting.
It's for these reasons Wall Street analysts expect Nvidia's earnings to grow at high rates over the next several years. There will inevitably be ups and downs, as Nvidia's stock history as shown, but the payoff down the road is too great to pass up.
2. Micron Technology
Micron Technology's (NASDAQ: MU) memory and storage products will also benefit from the data center buildout. GPUs are the building blocks, but those high-powered processors are worthless if data centers don't have the capacity to store and retrieve data to train AI models.
Micron is one of the leading suppliers of high-bandwidth memory modules and solid-state storage drives. The company's revenue can fluctuate from swings in memory pricing, but it's currently benefiting from the ramp in data center investment, as revenue jumped 81% year over year in the most recent quarter.
Looking ahead, Micron sees more favorable revenue trends, as demand for AI-enabled PCs and smartphones will kick in and benefit its business, too. Management's outlook calls for record revenue in fiscal 2025 (which ends in August 2025).
The stock hit a high of $157 this year before falling to its current share price of around $96. Wall Street is concerned that Micron and its competitors might over-invest in memory supply to meet demand, which could potentially pressure selling prices and revenue.
However, Micron's annual revenue has been trending up for years. Training AI models will require growing amounts of data. This will continue to drive more demand for storage and memory bandwidth that will ultimately benefit Micron. An investment in Micron is basically a bet on the long-term growth of data consumption in the economy.
The best time to buy Micron stock is on the dip. 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 to move back toward its previous highs, implying 50% upside or more, within the next few years.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Ballard has positions in Meta Platforms and Nvidia. The Motley Fool has positions 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