Investing in innovative technology leaders can help you build wealth over the long term. The tech-centric Nasdaq Composite has doubled in the last five years, and there are still opportunities to buy top tech stocks at attractive valuations relative to their growth prospects.
Here are two companies serving the increasing demand for artificial intelligence (AI) chips whose shares could potentially double in value by 2030.
Image source: Getty Images.
1. Nvidia
Nvidia(NASDAQ: NVDA) is the leading supplier of graphics processing units (GPUs), which are in high demand to power AI workloads in data centers. After the stock dipped earlier this year over concerns about potential softening in data center spending, Nvidia reported another quarter of strong growth that has its stock closing in on new highs.
Revenue was reported at $44 billion, up 69% year over year and 12% over the previous quarter. Despite missing out on $2.5 billion in revenue for its H20 chip over new export requirements to China, the company still managed to beat Wall Street's revenue estimate in the quarter.
CEO Jensen Huang spoke to how strong the demand for AI is in the earnings report. "Countries around the world are recognizing AI as essential infrastructure -- just like electricity and the internet -- and Nvidia stands at the center of this profound transformation," he said.
AI spending is expected to boost the global economy by $20 trillion by 2030, according to IDC. AI is the next industrial revolution, and it spells enormous growth potential for the leading AI chip supplier.
Nvidia continues to benefit from growing demand from the leading cloud service providers like Amazon Web Services and Alphabet's Google Cloud. Demand based on cloud applications made up nearly half of the chipmaker's data center sales last quarter, which grew 73% year over year to $39 billion.
It is providing AI computing systems for a variety of markets, including autonomous driving and robotics. These are potentially multitrillion-dollar industries that could drive long-term demand for the company's chips.
Nvidia faces increasing competition from other technology leaders designing their own custom semiconductors. But these chips are still no comparison for the general-purpose computing power its GPUs provide. The company should continue to see growing revenue this year as it ramps up its Blackwell computing system, which provides a significant boost in performance for AI workloads.
Analysts expect earnings to grow 29% on an annualized basis over the next several years. Assuming the stock continues to trade at the same forward price-to-earnings multiple of 33, this would be more than enough earnings growth to double the share price in five years.
Image source: Getty Images.
2. Lam Research
Another company playing a vital role in meeting increasing demand for chips is Lam Research(NASDAQ: LRCX). Its expertise is in providing etch and deposition equipment, which are essential steps in the chip manufacturing process. The rise in demand has sent the stock up more than 200% in the last five years.
Shares are currently trading about 25% off previous highs, which sets up a good buying opportunity. Lam just reported another solid quarter of growth with revenue surging 24% year over year.
While there is near-term uncertainty for the semiconductor industry due to the impact of tariffs, Lam's management is very upbeat about its long-term prospects. CEO Tim Archer said, "Lam's portfolio is the most compelling it's ever been, driving opportunities to expand our addressable market, gain share, and deliver innovative services as deposition and etch intensity increases in the production of advanced semiconductors."
The semiconductor industry can be cyclical, but it has grown for decades. AI will be a major catalyst over the next decade. As it relates to Lam, wafer equipment spending grew at an annualized rate of 11% from 2013 through 2024, while revenue grew faster at 14%.
The company expects to outperform the industry. As semiconductors continue to transition to more sophisticated designs, Lam's focus on etch and deposition, which create the intricate electrical patterns on a wafer, should drive more growth for shareholders.
Analysts expect Lam Research to grow earnings at an annualized rate of 15%, yet the stock trades at a reasonable forward earnings multiple of 21. Investors should expect the stock to climb on par with the company's earnings, which are pointing to a double in five years.
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Suzanne 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. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Lam Research, and Nvidia. The Motley Fool has a disclosure policy.
