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Nvidia and Broadcom are designing and supplying AI computing equipment.
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Taiwan Semiconductor makes chips for nearly all companies in the AI arms race.
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Amazon and Alphabet are two of the leading cloud computing companies.
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10 stocks we like better than Taiwan Semiconductor Manufacturing ›
Artificial intelligence (AI) investing is what's keeping the market propped up right now. A significant amount of money is being spent on building AI computing infrastructure, and numerous businesses are benefiting from this spending trend.
By picking up shares of companies that are benefiting from the spending now, investors can ensure they're not buying into hype.
I've got five stocks that meet this criteria, and each looks like a great investment now.
Since the beginning of the AI arms race, a handful of companies have been assumed winners based on their products. The market turned out to be right about this, as Nvidia (NASDAQ: NVDA), Broadcom (NASDAQ: AVGO), and Taiwan Semiconductor (NYSE: TSM) have all delivered spectacular returns. However, they're not finished yet.
Nvidia's graphics processing units (GPUs) have powered nearly all of the AI workloads that investors know today. Demand for GPUs outpaces supply, so many of Nvidia's largest clients are working closely with the company to inform it of their future demand years in advance. So, when Nvidia's management speaks about industry growth, investors should listen.
Nvidia expects global data center capital expenditures to reach $3 trillion to $4 trillion by 2030. That's monstrous growth from today's amount (Nvidia estimates the big four hyperscalers will spend around $600 billion in 2025), and shows that the AI computing infrastructure buildout is far from over.
This clearly makes Nvidia a buy, but it also bodes well for Broadcom and Taiwan Semiconductor.
Broadcom manufactures connectivity switches for these computing data centers, enabling users to stitch together information being computed across multiple computing units. However, another area where Broadcom is experiencing significant growth is its custom AI accelerators, which it designs in collaboration with end users. This is a direct challenge to Nvidia's GPU superiority, although both products will continue to be used in the future. With many companies looking to cut Nvidia out to reduce the costs of building a data center, Broadcom is one to watch over the next few years.
Lastly, neither company can produce the actual chip that goes into these products. So, they outsource the work to the world's leading chip foundry, Taiwan Semiconductor. TSMC doesn't care which company has the most computing units in data centers around the globe; it just cares that the chips they use are sourced from its factories, making it a neutral player in the AI arms race. While Taiwan Semiconductor may not have the upside of Nvidia or Broadcom, it also doesn't have the downside. This makes it a safe bet to capitalize on all the AI spending, and it's one of my top picks for stocks to buy now.