The artificial intelligence (AI) trend has significantly boosted stock prices of Nvidia (NVDA -3.00%) And Semiconductor manufacturing in Taiwan (TSM 0.60%) over the past year. Shares of the two chipmakers rose 204% and 121%, respectively, during the period, dwarfing the 35% gains posted by the PHLX Semiconductor Sector hint.
Massive demand for powerful chips capable of handling AI workloads in data centers has played a central role in rising stock prices, with large cloud services companies and governments deploying large quantities of semi- AI-specific drivers designed by Nvidia and manufactured by Taiwan Semi. . Market research firm Gartner estimates that global public cloud spending increased by 19.2% in 2024 and predicts that it will grow at a faster rate of 21.5% in 2025.
Evidence of increased cloud spending in 2025 has already started to emerge. In a blog post earlier this month, Microsoft (NASDAQ:MSFT) Vice Chairman and President Brad Smith said the company “is on track to invest approximately $80 billion to build AI-powered data centers to train AI models and deploy applications AI and cloud-based solutions around the world.
This news portends a strong year for Nvidia and TSMC.
Microsoft’s announcement suggests the AI arms race will intensify
When Microsoft released its results for its first quarter of fiscal 2025, which ended September 30, the company revealed that it had made $14.9 billion in capital expenditures on property, plant and equipment. As such, its plan calls for a higher level of quarterly capital spending – about $22 billion on average – for the remainder of the fiscal year.
For comparison, Microsoft’s total capital expenditures were $55.7 billion in fiscal 2024, so its investments are on track to increase by more than 43%. The tech giant made it clear that the money would go towards building AI data centers. Thus, Microsoft’s demand for AI chips designed by Nvidia and manufactured by TSMC is expected to continue to increase in 2025.
Microsoft won’t be the only company to significantly increase its capital spending on AI infrastructure, however. Metaplatformsfor example, is expected to report total 2024 capital spending of between $38 billion and $40 billion, but it projects “significant” growth on that front in 2025. In total, the combined spending of major cloud computing players Microsoft, Meta, AmazonAnd Alphabet could reach $300 billion in 2025, compared to around $200 billion in 2024, according to estimates from Morgan Stanley.
Nvidia and TSMC’s efforts to increase production could generate stronger growth
The potential market for AI chips is expected to expand significantly this year. More importantly, there is a good chance that these two semiconductor giants will be able to meet the tremendous demand from major cloud providers. Indeed, Microsoft CEO Satya Nadella recently noted that the tech giant is no longer constrained when it comes to supplying AI chips.
This is not surprising. During Nvidia’s November earnings conference call, CFO Colette Kress said that in the current fiscal quarter the company was “on track to exceed our previous Blackwell revenue estimate by several billion dollars , while our visibility on the offer continues to increase. This means that Nvidia is producing more next-generation Blackwell processors than initially expected. The reason Nvidia now has greater visibility into its supply chain is because its foundry partner TSMC has significantly increased its AI chip production capacity.
TSMC is expected to double its advanced chip packaging capacity in 2025 to 75,000 wafers per month. Additionally, Nvidia would have been allocated 60% of this increased capacity this year. Nvidia and TSMC are therefore in a strong position to make the most of the impressive increase in capital spending by major cloud providers discussed above.
Analysts expect Nvidia’s earnings to rise 50% in its 2026 fiscal year (which begins in February) to $4.43 per share. TSMC’s earnings, on the other hand, are expected to jump 28% in 2025 to $9.06 per share. However, the combination of cloud service providers’ increased capital spending on AI data centers and Nvidia and TSMC’s focus on rapidly increasing capacity to meet this high demand and growth should set them up for another year of tremendous gains that could exceed Wall Street’s current expectations. .
Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the securities mentioned. The Motley Fool holds positions and recommends Alphabet, Amazon, Meta Platforms, 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. The Motley Fool has a disclosure policy.
