The significant investment in transitioning data centers from traditional computing to accelerated computing for artificial intelligence (AI) is a key driver for top chip stocks.
According to JPMorgan, applications utilizing generative AI have the potential to contribute trillions of value to the global economy. Here are two prominent semiconductor firms providing the necessary hardware for this transformation.
Nvidia
Nvidia (NASDAQ: NVDA) commands an estimated 80% share of the market for AI chips, a dominant position that fuels substantial profits, facilitating ongoing innovation efforts. Leveraging its graphics processing units (GPUs), Nvidia powers platforms like OpenAI’s ChatGPT and major cloud services. Last year, Nvidia witnessed triple-digit revenue growth, with demand signaling another robust year in 2024.
Despite a 78% surge since the year’s start, Nvidia’s remarkable growth trajectory continues to attract investor attention. Heightened demand for its GPU systems drove a staggering 286% increase in adjusted profit to $32 billion last year.
In March, Nvidia introduced the groundbreaking Blackwell GPU-based platform, boasting 208 billion transistors, catering to the computational needs of generative AI applications. Adoption is expected from industry giants like Amazon, Tesla, Meta Platforms, and Microsoft.
Nvidia’s dominance in the AI chip market stems from its legacy in designing GPUs for gaming. CEO Jensen Huang’s visionary leadership guided the company to adapt GPU technology for diverse sectors, including autonomous vehicles, robotics, and AI-driven supercomputers. This adaptability solidifies Nvidia as a compelling long-term investment.
Anticipating sustained growth, analysts have revised Nvidia’s earnings forecasts upward, projecting a 35% annualized growth rate. With a forward price-to-earnings (P/E) ratio of 36, the stock remains attractively poised for long-term returns.
Marvell Technology
Marvell Technology (NASDAQ: MRVL) is gaining favor among investors in the semiconductor sector. The company specializes in products like ethernet adapters and storage solutions, crucial for data centers in managing, storing, and processing data. With a 76% climb in the past year, Marvell’s robust performance reflects the strong demand in its data center segment.
While overall revenue saw a modest 1% growth last quarter, the data center revenue surged by 54% year over year, reaching a record $754 million, with AI revenue surpassing $200 million. Analysts predict a 42% increase in total revenue over the next two years, projecting it to hit $8.4 billion.
Although Marvell anticipates some market softness in consumer applications, wireless products, and enterprise networking in the near term, it foresees sequential growth in data centers next quarter. Management remains optimistic about AI-related opportunities and continues to invest for further expansion.
These developments underscore Marvell’s significant role in the ongoing surge of investment in data center infrastructure. As data centers upgrade components to accommodate the substantial data streams required for AI training, Marvell stands to benefit significantly. Notably, Marvell’s AI-related revenue has surged from 3% in fiscal 2023 to 10% in fiscal 2024.
Despite a forward P/E at a premium of 49, analysts project Marvell’s long-term earnings growth to rise at an annualized rate of 26%. Similar to Nvidia, Marvell boasts profitability and increasing free cash flow, positioning the stock as a sound buy-and-hold investment.
