Artificial intelligence (AI) is poised to generate substantial returns for investors, and companies supplying the chips that power this technology are well-positioned to deliver significant gains. History suggests that successful companies often continue to thrive, making now an opportune time to consider these two stocks.
Nvidia
Shares of Nvidia (NVDA) have experienced remarkable growth in recent years. While the company supplies graphics processing units (GPUs) for video games, autonomous driving, and 3D animation, it’s the strong demand in the data center market that has fueled its impressive performance. The stock has surged by 1,800% over the last five years. Nvidia’s recent financial results for the fiscal fourth quarter alleviated concerns about a potential slowdown in the data center market. Revenue grew 78% year-over-year, and management anticipates record revenue of $43 billion in the next quarter. While the chip industry is cyclical, Nvidia’s outlook appears robust.
Concerns arose recently when China’s DeepSeek developed a lower-cost AI model. However, Nvidia’s guidance suggests these fears may be unfounded. CEO Jensen Huang stated, “AI is advancing at light speed as agentic AI and physical AI set the stage for the next wave of AI to revolutionize the largest industries.” The company’s new Blackwell platform, designed for advanced AI workloads, exceeded management’s expectations in the last quarter, generating $11 billion in revenue. Data center revenue for the full year more than doubled to $115 billion, largely driven by investments in generative AI chatbots, search, and recommendation systems. Looking ahead, Nvidia anticipates further demand from enterprise investments in AI agents and robotics. According to Dell’Oro Group, data center spending could reach $1 trillion by 2029, representing a compound annual growth rate of 21%. As the dominant supplier of chips for data centers, Nvidia is primed for continued success.
Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSMC) (TSM), a major player in the chip industry, manufactures chips for Nvidia and many other companies. It has earned a strong reputation for producing cutting-edge processing nodes and supporting chip suppliers in meeting demand. As the leading global foundry, TSMC is a highly profitable business with a track record of delivering excellent returns to shareholders. Investing in TSMC represents a strategic bet on the ongoing growth of advanced processing technologies.
Strong demand for AI chip technologies drove a 37% year-over-year increase in TSMC’s revenue during the fourth quarter, particularly within demand for its 3-nanometer and 5-nanometer chip technologies. Production of 2-nanometer process nodes is already ramping up, which promises lower power consumption and improved chip performance. Despite the cyclical nature of the industry, TSMC’s revenue and earnings have grown at an annualized rate of 18% over the past 30 years, mirroring the stock’s impressive climb of more than 6,000%. Management anticipates that AI accelerators, such as GPUs and custom AI chips, will be major contributors to the company’s revenue growth over the coming years. The company projects 20% annualized revenue growth through 2029. With the stock trading at 20 times 2025 earnings estimates and analysts forecasting annualized earnings growth of 33%, investing in Taiwan Semiconductor could generate substantial returns throughout the decade.
