The trend of Artificial Intelligence (AI) has given a big boost to share prices nvidia(NASDAQ: NVDA ) And Taiwan Semiconductor Manufacturing(NYSE: TSM ) More than last year. Stocks of the two chipmakers rose 204% and 121%, respectively, during the period, crushing the 35% gains recorded by PHLX Semiconductor Sector index.
Strong demand for powerful chips capable of handling AI workloads in data centers has played a central role in driving those share prices, leading cloud service companies and governments to buy AI-specific semiconductors designed by Nvidia and manufactured by Taiwan Semiconductor. Deployed in quantity. . Market research firm Gartner Global public cloud spending is estimated to have grown by 19.2% in 2024, and is predicted to grow at a faster rate of 21.5% in 2025.
Evidence is already beginning to emerge that cloud spending will strengthen in 2025. In a blog post earlier this month, Microsoft(NASDAQ: MSFT ) Vice Chairman and President Brad Smith said the company is “on track to invest nearly $80 billion to build AI-enabled datacenters to train AI models and deploy AI and cloud-based applications around the world.”
The news points to a solid year for Nvidia and TSMC.
When Microsoft released results for the first quarter of its fiscal year 2025, which ended Sept. 30, the company disclosed that it had made $14.9 billion in capital expenditures on property, plant and equipment. As such, its plan points to higher levels of quarterly capex spending — about $22 billion, on average — for the rest of the fiscal year.
For comparison, Microsoft’s total capital spending was $55.7 billion in fiscal 2024, so its capex is on track to grow by more than 43%. The tech giant has made it clear that the money will go towards building AI data centers. Therefore, demand for Microsoft’s AI chips that Nvidia designs and TSMC manufactures should continue to grow in 2025.
Microsoft, however, won’t be the only company ramping up its capital spending for AI infrastructure. Meta platformFor example, it is expected to report total 2024 capital expenditures in the $38 billion to $40 billion range, but it plans “significant” growth on that front in 2025. Overall, the major cloud computing players are Microsoft, Meta. , AmazonAnd the alphabet According to estimates, it could reach 300 billion dollars in 2025 which could increase to about 200 billion dollars in 2024. Morgan Stanley.
The addressable market for AI chips is set to expand significantly this year. More importantly, there is a good chance that both of these semiconductor giants will be able to meet the tremendous demand from major cloud providers. That’s because Microsoft CEO Satya Nadella recently commented that the tech giant AI chip supply is no longer limited.
This is not surprising. During November of Nvidia Earnings conference callCFO Colette Kress said that in the current fiscal quarter, the company is “on track to exceed our previous Blackwell revenue estimate by several billion dollars as our visibility into supply continues to increase.” This means that Nvidia is producing more of its next-generation Blackwell processors than it originally expected. The reason Nvidia now has more visibility into its supply chain is that its foundry partner TSMC is significantly increasing its AI chip production capacity.
TSMC is expected to double its advanced chip packaging capacity to 75,000 wafers per month in 2025. Additionally, Nvidia has reportedly been allocated 60% of this increased capacity this year. So Nvidia and TSMC are in a solid position to leverage capital spending by the major cloud providers mentioned above.
Analysts are expecting Nvidia’s earnings to rise 50% to $4.43 a share in its fiscal year 2026 (which starts in February). TSMC’s earnings, on the other hand, are expected to rise 28% to $9.06 per share in 2025. However, the combination of increased capital spending by cloud service providers on AI data centers and Nvidia and TSMC’s focus on rapidly adding capacity to meet that high and growing demand should position them for another year of impressive gains. should be set to exceed Wall Street’s current expectations. .
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Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Harsh Chauhan No positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platform, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. Motley Fool has a Disclosure Policy.
