This has proven to be a very solid year for artificial intelligence (AI) stocks, as companies benefiting from the rapidly growing adoption of this technology have witnessed solid improvement in their businesses, which has also led to healthy gains in their stock prices has led.
The good thing is that the spread of AI is still in its early stages, and spending on this technology will continue to grow in 2025. Market research firm IDC estimates that global spending on AI could rise to $337 billion next year, compared to this year’s expected spending. $235 billion. That would represent an impressive year-over-year increase of almost 50%.
There are several ways investors can benefit from this big jump in AI spending next year. Let’s take a look at two such names that are playing a key role in driving AI adoption and have witnessed a nice acceleration in their growth thanks to this technology.
The world’s largest semiconductor foundry, Taiwanese semiconductor manufacturing(NYSE: TSM)is the go-to chip manufacturer for multiple chip designers such as Nvidia, Micron technology, Marvell, Broadcom, Advanced micro devicesAnd Qualcommwhile also producing chips for consumer electronics companies such as Apple And Sony.
All these customers have increased demand for chips that can support generative AI applications across multiple industries. For example, Nvidia, Micron, Marvell, Broadcom and AMD enable TSMC to capitalize on the fast-growing demand for AI data center chips. Market research agency Gartner predicts a 14% increase in semiconductor revenue next year, driven by strong demand for graphics processing units (GPUs) and memory chips sold by some TSMC customers.
More specifically, AI GPU revenues are expected to rise 27% next year, while demand for high-bandwidth memory (HBM), a type of memory deployed in AI chips, could rise 70%. Similarly, the adoption of AI in consumer electronics products will be a new tailwind for TSMC. For example, Apple and Qualcomm are benefiting from the proliferation of AI-enabled smartphones, while AMD has seen an increase in demand for central processing units (CPUs) that can power AI-enabled personal computers (PCs).
These markets provide another long-term growth opportunity for TSMC. According to IDC, shipments of generative, AI-enabled smartphones could increase by 73% next year, while AI-enabled PCs are expected to see a massive 165% increase in shipments next year. So as TSMC’s customers gear up to meet the increase in demand for AI chips across multiple industries, the Taiwan-based foundry giant should be able to deliver solid performance next year.
It’s worth noting that TSMC has seen a big jump in demand for its foundry services this year. The company’s sales in the eleven months of 2024 so far are up 32% compared to the same period last year. TSMC appears to be ending the year on solid footing as revenue growth accelerated to 34% year-over-year in November, up from October’s 29% growth. This also indicates that the company will enter the new year with momentum on its side. .
The growth drivers discussed above tell us why the company’s revenue will grow at a healthy 25% pace next year.
TSM revenue estimates for current fiscal year data by YCharts
TSMC’s profits are also expected to rise by an identical margin in 2025. Add to that the company’s attractive valuation and it’s easy to see why buying this semiconductor stock is a no-brainer. TSMC trades at 22 times forward earnings, a discount to the Nasdaq-100 the index’s future earnings multiple of 28 (using the index as a benchmark for technology stocks).
The stock has an average 12-month price target of $240, according to 47 analysts covering the stock (96% of whom rate it as a Buy), indicating a 25% jump from current levels. However, it should come as no surprise that TSMC is doing better thanks to the crucial role it plays in the global semiconductor market. Therefore, investors should consider buying this stock as it looks poised for healthy gains in 2025.
Dell Technologies(NYSE: DELL) has been in the spotlight for all the wrong reasons lately, as the tech giant’s shares crashed following the release of its third-quarter fiscal 2025 results (for the three months ended November 1) on November 26. Investors hit the panic button as Dell’s earnings fell short of Wall Street expectations.
But that’s good news for smart investors. That’s because Dell stock can be bought now at just 21.6 times trailing earnings, while the forward earnings multiple of 12.5 is even more attractive. Buying Dell at this valuation seems like a no-brainer, as it is on track to benefit from two major AI-related catalysts in 2025 and beyond.
The first is the rapidly growing demand for AI servers. As reported by Bloombergthe AI server market could achieve an outstanding 55% growth by 2025, generating an estimated $252 billion in revenue. Dell is already benefiting from this fast-growing AI niche. This was evident in the company’s latest quarterly report, with Infrastructure Solutions Group (ISG) revenue rising 34% year over year to $11.4 billion.
More specifically, Dell’s revenue from the sale of servers and networking equipment increased at an accelerated pace of 58% to $7.4 billion. The company sold $2.9 billion worth of AI servers last quarter and received new orders worth $3.6 billion. Dell ended the quarter with an AI server backlog of $4.5 billion. More importantly, Dell’s AI server pipeline for the next five quarters is up more than 50% on a sequential basis.
So Dell’s ISG revenues should continue to grow at an impressive pace through 2025, thanks to its vast capabilities in AI servers.
The second AI-related opportunity for Dell is in the area of AI-enabled PCs. We’ve already seen that this market will grow massively next year, and that bodes well for Dell as it is the third largest PC vendor in the world, with a market share of just over 14%. Dell management pointed out during its latest earnings conference call that it sees “an indication that customers are lining up their upgrade cycles with new AI PCs in the first half of next year.”
These catalysts explain why Dell’s earnings growth is expected to accelerate from this fiscal year’s estimate of nearly 10% to $7.82 per share.
DELL EPS estimates for current fiscal year data based on YCharts
The chart above shows that Dell’s revenues could increase by more than 20% in the 2026 fiscal year (which starts in February 2025). Assuming Dell earns earnings of $9.40 per share in the coming fiscal year and trades in line with the Nasdaq-100 index’s expected earnings multiple of 28 at that time, the stock price could reach $263. That would be an increase of 125% from current levels.
So, investors looking for an attractively valued AI stock may want to consider using Dell’s pullback to buy it as it could deliver big gains in 2025.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom, Gartner and Marvell Technology. The Motley Fool has a disclosure policy.
Two No-Brainer Artificial Intelligence (AI) Stocks You Should Buy Before 2025 Originally published by The Motley Fool
