The massive investments currently being made to transition from traditional data center computing to accelerated artificial intelligence (AI) computing are a major catalyst for leading chip stocks.
Accordingly, applications that use generative AI could create trillions of dollars in added value for the global economy JP Morgan. Here are two leading semiconductor companies that provide the hardware to make this possible.
Nvidia
Nvidia (NASDAQ:NVDA) It is estimated to control 80% of the market for AI chips, and this lucrative position gives the company huge profits to fund years of innovation. The company’s graphics processing units (GPUs) are used by OpenAI’s ChatGPT and all leading cloud services. Nvidia posted triple-digit revenue growth last year, with demand pointing to another strong year of growth in 2024.
The stock is up 78% year-to-date alone, but that’s largely because investors are still keeping up with the company’s incredible growth. Rising demand for its GPU systems pushed Nvidia’s adjusted profit up 286% to $32 billion last year.
In March, Nvidia introduced the new GPU-based Blackwell platform, which features 208 billion transistors and provides the computing power for generative AI needs. Amazon, Tesla, MetaplatformsAnd Microsoft are among the companies expected to acquire Blackwell.
Nvidia dominates the AI chip market due to its previous experience in developing graphics processors for playing video games. CEO Jensen Huang’s forward-thinking led the company to adapt its GPU technology to multiple markets, including self-driving cars, robotics and supercomputers for AI. Its adaptability makes Nvidia a solid buy-and-hold investment.
I would not underestimate the company’s ability to continue to grow for many years to come. Wall Street analysts have raised their growth forecast and currently expect Nvidia’s earnings to grow 35% per year on an annualized basis. With an expected price-earnings ratio (P/E) of 36, the stock still offers attractive long-term return potential.
Marvell technology
One name that many investors in the semiconductor industry are becoming increasingly bullish on is Marvell technology (NASDAQ:MRVL). The company’s products, including Ethernet adapters and storage solutions, help data centers move, store and process data. The stock is up 76% in the last year as its data center business faces strong demand.
Marvell’s revenue rose just 1% last quarter, but its data center revenue rose 54% year-over-year to a record $754 million, with AI revenue topping $200 million. Wall Street’s current estimate is for the company’s total revenue to rise 42% to $8.4 billion over the next two years.
The company expects a near-term slowdown in certain markets, such as consumer applications, wireless products and enterprise networks. But it’s a guide to sequential data center growth next quarter. Management sees many opportunities related to AI and continues to invest in further growth.
These results show that Marvell will be a big beneficiary of the massive investments in data center infrastructure. Data centers are rapidly upgrading their components to handle the large streams of data required for AI training. Specifically, Marvell’s AI-related revenue increased from 3% in fiscal 2023 to 10% in fiscal 2024.
The forecast P/E ratio has widened to a premium of 49, but analysts expect Marvell’s long-term earnings growth to rise at a 26% annual rate. Like Nvidia, this is a profitable company that generates growing free cash flow, making the stock a solid buy-and-hold investment.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard holds positions at Nvidia and Tesla. The Motley Fool has positions in and recommends Amazon, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends Marvell Technology and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
“2 Semiconductor Stocks to Buy and Hold with Great Long-Term Potential” was originally published by The Motley Fool