In This Article:
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Nvidia's GPUs are critical in processing AI workloads.
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Taiwan Semiconductor supplies chips to many competitors in the AI arms race.
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Digital Realty Trust is an alternative AI pick that focuses on data center real estate.
Artificial intelligence (AI) remains a top investment theme in the market and shows no signs of slowing down. While some investors may be wary of the AI trend, the reality is that companies are investing vast resources in this technology, and many are reaping the benefits.
One of the biggest areas where investors will continue to see amazing growth is in data centers. Data centers are proliferating across the country to house the computing hardware used to process AI, and it is primarily in these buildouts that companies generate profits from AI.
Three stocks that I like in this space are Nvidia (NASDAQ: NVDA), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Digital Realty Trust (NYSE: DLR). I believe this trio is a no-brainer buy right now, and investors should consider these stocks first if they want to invest in the AI sector.
Nvidia's graphics processing units (GPUs) powered the AI arms race from the beginning. GPUs possess a key ability to process multiple calculations in parallel, making them ideal for complex workloads, such as AI. Additionally, they can be connected in clusters to further amplify this effect. Some companies have gone as far as connecting 100,000 GPUs, creating an ultimate computing machine focused on AI.
Nvidia holds an impressive 90% market share in data centers and continually innovates to maintain its leadership position. This dominance has been evident in Nvidia's results, with revenue rising 69% year over year in Q1 and expected to increase at a 50% rate in the second quarter, although Nvidia's management has been known to exceed internal expectations regularly.
Nvidia can't fabricate chips itself, so it designs them and sends the production to Taiwan Semiconductor. This fabless design approach has become the leading technique among many major tech companies, with others, such as Apple and Broadcom, adopting the same mindset. These are all Taiwan Semiconductor customers, alongside countless others.
Taiwan Semiconductor has risen to become the world's top chip manufacturer, thanks to its best-in-class yields and continuous innovation. Although its 3nm (nanometer) chip node has been a huge hit among its client base, it's scheduled to launch a 2nm node later this year and a 1.6nm node in 2026. These two innovations will bring significant advancements in power consumption, which could help reduce the energy demand of data centers.