Do you have $1,000? 2 Growth Stocks Building the Data Centers of the AI Infrastructure Supercycle.
If you have $1,000 that you’re willing to invest today, that would be enough to start positions in two of the chip stocks that look poised to lead the next wave of artificial intelligence (AI) development in 2017. Advanced microdevices (AMD +2.95%) And Broadcom (AVGO +3.35%). With $1,000 you could buy one share of each.
Let’s take a look at why these two semiconductor stocks look like solid investments.
1. AMD: A Winner in Inference, Agentic AI, and Physical AI
Today’s change
(2.95%) $6:18 p.m.
Current price
$633.91
Key Data Points
Daily scope
$628.55 -$645.46
52 week range
$188.22 -$645.46
Volume
19.9 million
Average flight
23.7 million
Gross margin
50.37%
AMD was foiled by Nvidia in the AI training market, but it is positioning itself to prevent this from happening again. It develops processors that target the inference, agentic AI and physical AI markets, and aims to be a viable competitor in all three.
It has also made significant investments in memory. This positions it well for the inference market, where architectures that prioritize high volumes of fast memory access are favored over raw computing power.
The chiplet design of its graphics processing units (GPUs) allows them to be packed with more memory, and AMD has also formed a partnership with Cerebral to offer a disaggregated inference solution that combines their two systems. It also signed a deal to acquire inference chip maker Taalas, which integrates AI models directly into its chips. It also purchased memory optimization company MEXT earlier this year. And AMD has two $100 billion inference deals with OpenAI and Metaplatformsas well as a major deal with Anthropic.
In addition to this, the company is a market leader in data center central processing units (CPUs). This market has exploded with the rise of agentic AI, as servers dedicated to powering AI agents require many more processors than those used for AI training. AMD predicts that the data center processor market will reach $220 billion in the coming years, although in light of the growing popularity of Meta’s new Muse agentic AI offering, that estimate may turn out to be low. By the way, Meta runs its Muse agents on AMD processors.
Finally, with its agreement to acquire the World Labs AI model and research laboratory, AMD enhances its ability to capture the physical AI and robotics markets. World Lab’s expertise lies in spatial intelligence models and will provide AMD with the tools necessary to advance an open AI ecosystem (unlike Nvidia’s closed system) that serves these emerging AI markets. This deal is not intended to sell more chips in the short term, but rather to create future architectures and platforms for physical AI.
Considering all of its upcoming growth opportunities, AMD stock is a buy.
Image source: The Motley Fool.
2. Broadcom: the custom chip giant
Today’s change
(3.35%) $11:50 a.m.
Current price
$355.14
Key Data Points
Daily scope
$347.42 -$357.35
52 week range
$289.96 -$495.00
Volume
24.6 million
Average flight
22.5 million
Gross margin
66.54%
Dividend yield
0.73%
With spending on AI infrastructure skyrocketing, hyperscalers (owners of large data centers) are increasingly looking to reduce costs, and one way they’re doing so is by looking for sources of processing power other than GPU giant Nvidia. One way they do this is by designing their own application-specific integrated circuits (ASICs). These are specially designed and wired AI accelerators that handle the narrow workloads they were designed for more efficiently than a general-purpose GPU, and thus consume less power.
However, getting from design concepts to physical chips that can be manufactured at scale is not a simple process, and that’s where Broadcom comes in. It is the leader in ASIC technology and provides significant intellectual property and services, collaborating on designs with its technology clients. It helped Alphabet developed its popular tensor processing units (TPUs), and the success they had helped entice other hyperscalers to sign on with Broadcom.
TPUs will remain Broadcom’s biggest business for the next few years, as Alphabet and Anthropic buy them. In fact, management says the AI Lab is poised to become its largest XPU customer next year. It also helped Meta and OpenAI create their own custom chips; production of these is just starting to ramp up. As such, management expects revenue from its custom chip business to double in the next fiscal year to $115 billion, then double again the following year to $230 billion.
In addition, Broadcom is also a leader in the field of data center networks. It manufactures Ethernet switches, digital signal processors (DSPs), SerDes (serializer/deserializers), and network interface cards (NICs) that data centers use to distribute AI workloads and transfer data between servers. Its greatest strength lies in AI data center Ethernet solutions, powered by its Tomahawk and Jericho chipsets. As the size of AI server clusters continues to grow, this becomes a huge business and is directly tied to its custom chip unit.
Broadcom is expected to see explosive growth in the coming years, but the stock trades at a cheap valuation, less than 12 times its estimated earnings for fiscal 2028. This makes AI stock a great buy.
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