80 Billion Reasons Why These 2 Top Artificial Intelligence (AI) Stocks Could Crush the Market Again in 2025

The artificial intelligence (AI) trend has given big boosts to the share prices of Nvidia (NASDAQ: NVDA) i Taiwan Semiconductor Manufacturing (NYSE: TSM) during the past year. Shares of the two chipmakers rose 204% and 121%, respectively, during the period, crushing the 35% gains posted by PHLX Semiconductor Sector index

Massive demand for powerful chips capable of handling AI workloads in data centers has played a central role in driving these share price gains, with major cloud services companies and governments deploying large quantities of AI-specific semiconductors designed by Nvidia and manufactured by Taiwan Semi. . Market research company Gartner estimates that global public cloud spending grew by 19.2% in 2024 and predicts it will grow at a faster rate of 21.5% in 2025.

Evidence has already begun to emerge that cloud spending will increase by 2025. In a blog post earlier this month, Microsoft (NASDAQ: MSFT) Vice Chairman and President Brad Smith said the company “is on track to invest approximately $80 billion to build AI-powered data centers to train AI models and deploy AI-based and cloud applications across the world”.

This news points to a solid year for Nvidia and TSMC.

When Microsoft released its results for the first quarter of fiscal 2025, which ended on September 30, the company disclosed that it had made capital expenditures of $14.9 billion on property, plant and equipment. As such, its plan points toward a higher level of quarterly capex spending (about $22 billion, on average) for the rest of the fiscal year.

By comparison, Microsoft’s total capital spending stood at $55.7 billion in fiscal 2024, so its capex is on track to increase by more than 43%. The tech giant has made it clear that the money will go towards building AI data centers. Therefore, Microsoft’s demand for the AI chips that Nvidia designs and TSMC makes should continue to increase in 2025.

Microsoft, however, will not be the only company to significantly increase its capital expenditures for AI infrastructure. Metaplatformsfor example, it is expected to report total capital expenditures for 2024 of between $38 billion and $40 billion, but it expects “significant” growth in this regard in 2025. In total, the combined spending of the major computing players in the Microsoft cloud, Meta , Amazoni alphabet could reach $300 billion by 2025 from about $200 billion in 2024, according to estimates by Morgan Stanley.

The addressable market for AI chips will expand considerably this year. More importantly, there is a good chance that these two semiconductor giants will be able to meet the high demand from major cloud providers. That’s because Microsoft CEO Satya Nadella recently commented that the tech giant it is no longer limited for the supply of AI chips.

This is not surprising. During Nvidia’s November earnings conference callCFO Colette Kress said that in the current fiscal quarter, the company “is on track to exceed our previous Blackwell revenue estimate by several billion dollars as our supply visibility continues to increase.” . This means that Nvidia is producing more next-generation Blackwell processors than initially expected. The reason Nvidia now has greater visibility into its supply chain is because its foundry partner TSMC has significantly increased its AI chip production capacity.

TSMC is expected to double its advanced chip packaging capacity by 2025 to 75,000 wafers per month. In addition, this year Nvidia has been allocated 60% of this increased capacity. Thus, Nvidia and TSMC are in a strong position to take full advantage of the impressive increase in capital spending by the major cloud providers discussed above.

Analysts expect Nvidia’s earnings to rise 50% in fiscal 2026 (which starts in February) to $4.43 a share. On the other hand, TSMC’s earnings are expected to rise 28% in 2025 to $9.06 per share. However, the combination of increased capital spending by cloud service providers on AI data centers along with Nvidia and TSMC’s focus on rapidly adding capacity to serve this high and growing demand should setting them up for another year of fantastic earnings that may exceed current Wall Street expectations. .

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Randi Zuckerberg, former CMO and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. They drive hard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has one disclosure policy.

80 Billion Reasons Why These 2 Top Artificial Intelligence (AI) Stocks Could Crush the Market Again in 2025 was originally published by The Motley Fool

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