2 days ago
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One of the biggest opportunities among artificial intelligence (AI) investments is semiconductor stocks. Of course, some obvious opportunities include such powerhouses as Nvidia and Advanced Micro Devices. Both companies make chipsets called graphics processing units (GPUs), which play a critical role in developing generative AI applications.
Below, I'll explain why the semiconductor realm presents such lucrative investment prospects over the next several years. Moreover, I'll break down which companies are the major players in the chip space and share my top pick.
What is the market potential for AI-powered chips?
Chips play an integral role throughout the AI ecosystem. Some prominent use cases for AI chips include natural language processing (NLP), machine learning, and cloud computing.
According to data compiled by Precedence Research, the global total addressable market for AI-powered chips is expected to grow at a compound annual rate of 30% between 2023 and 2032 -- ultimately reaching a size of $227 billion by early next decade.
Who are the major players in semiconductors now?
As I referenced above, Nvidia and AMD are perhaps the two biggest names in AI chips right now. In addition, more niche players include Arm Holdings and Broadcom -- the latter of which looks poised to disrupt both the software and hardware side of AI chips.
However, smart investors understand that other opportunities exist beyond core market players. In fact, many of Nvidia's customers are investing heavily in the development of their own AI chips.
Right now, Amazon and Meta Platforms are two tangential opportunities for investors interested in exposure to the chip market. Amazon is developing its own line of chips, dubbed Trainium and Inferentia. Meanwhile, Meta's Training and Inference Accelerator could be seen as a more strategic move to migrate away from Nvidia's H100 GPUs -- which comprises a portion of Meta's current capital expenditure budget.
Furthermore, Tesla CEO Elon Musk has even teased the idea of competing with Nvidia in the future. Considering the number of high-caliber companies using Nvidia chips, how could I see another opportunity as superior?
Well, there's a subtle theme from all the examples above. Namely, Nvidia is facing a rising wave of competition. Over time, I think the company will lose its ability to command such high pricing power, and this will subsequently eat into its market-dominating position. For these reasons, I would not be surprised to see Nvidia's growth decelerate and the stock premium begin to normalize.
