Artificial Intelligence (AI) promises to generate wealth-building returns for investors, and the companies that provide the powerful chips to enable this technology are in a great position to deliver monster returns.
Using history as a guide, that winners tend to keep on winning, here are two stocks to buy now.
1. Nvidia
Shares of Nvidia (NVDA 3.97%) have had an incredible run in recent years. The company supplies graphics processing units (GPUs) used for playing video games, autonomous driving, and 3D animation, but it’s the strong demand in the data center market that has sent the stock up 1,800% over the last five years.
Nvidia’s recent financial results for the fiscal fourth quarter should put to rest the fears of slowing momentum in the data center market. Revenue grew 78% year-over-year, and management guided for record revenue of $43 billion next quarter.
The chip industry is inherently cyclical, and data center spending is no different. The recent news that China’s DeepSeek built a lower-cost AI model raised concerns that Nvidia might experience slowing momentum in the near term, but those fears appear to be overblown based on Nvidia’s guidance and outlook for demand.
“AI is advancing at light speed as agentic AI and physical AI set the stage for the next wave of AI to revolutionize the largest industries,” CEO Jensen Huang said.
Sure enough, Nvidia’s new Blackwell platform, designed for the most advanced AI workloads, surpassed management’s expectations last quarter, as it generated $11 billion of revenue with more to come as it continues ramping production.
For the full year, Nvidia’s data center revenue more than doubled to $115 billion, but much of the demand has been driven by investment for the consumer space, such as generative AI chatbots, search, and recommendation systems. Nvidia sees the next wave of demand coming from enterprise investment in AI agents and robotics.
Dell’Oro Group forecasts data center spending to reach $1 trillion by 2029, representing a compound annual growth rate of 21%. As the dominant supplier of chips for data centers, this should fuel more returns for Nvidia investors.
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM -0.31%) makes the chips for Nvidia and many other chip companies. It has an outstanding reputation for building cutting-edge processing nodes and helping chip suppliers meet demand. As the leading global foundry, TSMC is a highly profitable business that has delivered excellent returns to shareholders. It’s a solid stock to ride the growing demand for advanced processing technologies.
Strong demand for AI chip technologies lifted TSMC’s revenue 37% year-over-year in the fourth quarter. This was driven by demand for its 3-nanometer and 5-nanometer chip technologies. The company is already ramping up production of 2-nanometer process nodes, which will allow for lower power consumption and better chip performance.
While TSMC has experienced dips in demand, given the cyclical nature of the industry, the company’s revenue and earnings have grown at an annualized rate of 18% over the last 30 years, and the stock has followed, climbing more than 6,000%.
An investment in TSMC is a bet on the continued innovation in chip technology. Over the long term, management sees AI accelerators, such as GPUs and custom AI chips, driving most of the company’s revenue growth in the coming years. The company’s outlook calls for 20% annualized revenue growth through 2029.
With the stock trading at 20 times 2025 earnings estimates, and analysts expecting annualized earnings growth of 33%, investing in Taiwan Semiconductor could deliver spectacular returns through the end of the decade.
John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
