The artificial intelligence (AI) trend has given big boosts to the stock prices of NVIDIA(NASDAQ: NVDA) and Semiconductor manufacturing in Taiwan(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 the PHLX Semiconductor Sector index.
Massive demand for powerful chips capable of handling AI workloads in data centers has played a central role in driving those share price gains, and major cloud services companies and governments have deployed 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 forecasts it will grow at a faster rate of 21.5% in 2025.
Evidence has already begun to emerge that cloud spending will strengthen in 2025. In a blog post earlier this month, microsoft(NASDAQ:MSFT) Vice President and President Brad Smith said the company “is on track to invest approximately $80 billion to build AI-enabled data centers to train AI models and deploy AI and cloud-based applications around 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 revealed 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 capital spending (around $22 billion, on average) for the remainder of the fiscal year.
For comparison, Microsoft’s total capital spending amounted to $55.7 billion in fiscal 2024, so its capital spending is on track to increase 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 AI chips designed by Nvidia and manufactured by TSMC should continue to increase in 2025.
Microsoft, however, will not be the only company to significantly increase its capital outlays for AI infrastructure. MetaplatformsFor example, it is expected to report total capital expenditures in 2024 in the range of $38 billion to $40 billion, but plans “significant” growth on that front in 2025. In total, the combined spending of the major players of cloud computing, Microsoft, Meta, Amazonand Alphabet could reach $300 billion in 2025 from around $200 billion in 2024, according to estimates by Morgan Stanley.
The addressable market for AI chips is expected to expand considerably this year. More importantly, there is a good chance that these two semiconductor giants will be able to meet the huge demand from major cloud providers. This is because Microsoft CEO Satya Nadella recently commented that the tech giant is no longer limited by the supply of AI chips.
That’s not surprising. During Nvidia’s earnings call in November, Chief Financial Officer Colette Kress said that in the current fiscal quarter, the company is “on track to beat our previous Blackwell revenue estimate of several billion dollars as our supply visibility continues to increase.” What this means is that Nvidia is producing more next-generation Blackwell processors than it originally anticipated. The reason Nvidia now has greater visibility into its supply chain is because its foundry partner TSMC has been significantly increasing its AI chip production capacity.
TSMC is expected to double its advanced chip packaging capacity in 2025 to 75,000 wafers per month. Additionally, Nvidia has reportedly been allocated 60% of this capacity increase this year. Nvidia and TSMC are therefore in a strong position to take full advantage of the impressive increase in capital spending by the major cloud providers mentioned above.
Analysts expect Nvidia’s earnings to rise 50% in its fiscal 2026 year (starting in February) to $4.43 per 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 that high and growing demand should prepare them for another year of huge profits that may exceed current Wall Street expectations. .
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Randi Zuckerberg, former director of market development and spokesperson for Facebook 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. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and recommends the following picks: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
80 Billion Reasons These Two Top Artificial Intelligence (AI) Stocks Could Crush the Market Again in 2025 was originally published by The Motley Fool
