The trend of artificial intelligence (AI) has given major boosts to stock prices Nvidia (Nasdaq: NVDA) and Taiwan Semiconductor Manufacturing Co., Ltd (NYSE: TSM) During the past year. Shares of the two chipmakers rose 204% and 121%, respectively, during the period, breaking the 35% gain recorded by the company. PHLX Semiconductor Sector index.
Massive demand for powerful chips capable of handling AI workloads in data centers has played a major role in driving stock price gains, as major cloud companies and governments deploy large quantities of AI semiconductors designed by Nvidia and manufactured by the Taiwanese company. Simi. . Market research company Gartner Global public cloud spending is estimated to have grown by 19.2% in 2024, and is expected to grow at an even faster pace of 21.5% in 2025.
Evidence that cloud spending will get stronger in 2025 is already emerging. In a blog post earlier this month, Microsoft (NASDAQ:MSFT) Vice Chairman and President Brad Smith said the company is “on track to invest nearly $80 billion to build AI-enabled data centers to train AI models and deploy AI and cloud-based applications around the world.”
This news signals a strong 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 spent $14.9 billion in capital expenditures on property, plant and equipment. As such, its plan indicates a higher level of quarterly capital spending — about $22 billion on average — for the rest of the fiscal year.
For comparison, Microsoft’s total capital spending was $55.7 billion in fiscal 2024, so its capital expenditures are on track to increase by more than 43%. The tech giant explained that the money will go toward building artificial intelligence data centers. Therefore, Microsoft’s demand for AI chips designed by NVIDIA and manufactured by TSMC should continue to rise in 2025.
However, Microsoft will not be the only company to significantly increase its capital expenditures for AI infrastructure. Meta platformsfor example, is expected to report total capital expenditures for 2024 in the range of $38 billion to $40 billion, but plans to deliver “significant” growth on that front in 2025. Overall, the combined spending of major computing players Microsoft Cloud and Meta, Amazonand alphabet It could reach $300 billion in 2025 from about $200 billion in 2024, according to estimates from Morgan Stanley.
The target market for AI chips is expected to expand significantly this year. More importantly, there is a good chance that both semiconductor giants will be able to meet the massive demand from major cloud providers. This is because Microsoft CEO Satya Nadella recently pointed out that the tech giant You are not limited by AI chip supplies anymore.
This is not surprising. During November from Nvidia Earnings conference callCFO Colette Kress said that in the current fiscal quarter, the company is “on track to exceed our previous Blackwell revenue estimate of several billion dollars as our view of the offering continues to increase.” What this means is that Nvidia is producing more next-gen Blackwell processors than it originally expected. The reason Nvidia now has greater visibility into its supply chain is because its foundry partner TSMC is significantly increasing its capacity to produce AI chips.
TSMC is expected to double its advanced chip packaging capacity in 2025 to 75,000 chips per month. Furthermore, 60% of this increased capacity has been allocated to Nvidia this year. So Nvidia and TSMC are in a strong position to make the most of the impressive increase in capital spending by the major cloud providers discussed above.
Analysts expect Nvidia’s earnings to increase 50% in its 2026 fiscal year (which will start in February) to $4.43 per share. On the other hand, TSMC’s earnings are expected to jump 28% in 2025 to $9.06 per share. However, the combination of increased capital spending by cloud providers on AI data centers combined with Nvidia and TSMC’s focus on quickly adding capacity to serve this high and growing demand should set them up for another year of impressive gains that could exceed current expectations at Wall. Street. .
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Susan Frey, an executive at Alphabet, 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 He has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
80 billion reasons why these two leading AI stocks could crush the market again in 2025 Originally published by The Motley Fool