Artificial intelligence (AI) breathed new life into the semiconductor industry. Reminiscent of the early days of the PC wars when chip stocks battled each other for supremacy by outdoing the latest advance by a rival, AI now has spawned new challengers to the old guard. Almost daily, they seem to offer new features and power.
Nvidia (NASDAQ:NVDA) remains the AI chip stock of choice. But you don’t have to put all your eggs into one basket — or all your chips onto one wafer. There is a rapidly expanding universe of semiconductor stocks to buy that could turn investors into millionaires within the next 10 years.
Below are three of the best chip stocks available today to make you wealthy tomorrow.
Arm Holdings (ARM)
Admittedly, Arm Holdings (NASDAQ:ARM) isn’t a chipmaker per se. It designs chip architectures that come with a set of instructions that semiconductor companies license. However, the chip designer just announced it will produce its first AI chip beginning next year. It won’t manufacture the chip itself but will turn to Taiwan Semiconductor Manufacturing (NYSE:TSM) and other foundries to ensure it has the capacity necessary to produce the chips. TSM currently produces almost all of Arm’s chips.
Arm Holdings has also been expanding into the data center market because its chip’s low power needs make them perfect for the segment’s high energy consumption. The market for AI chips is currently estimated at $30 billion, but within five years, it is expected to exceed $100 billion.
Energy conservation is also important in running PCs, and Arm’s architecture will be essential for the future AI PCs that will hit the market. Morgan Stanley analysts say Arm-based central processing units (CPUs) will be the standard for future computers. It forecasts AI PCs will achieve penetration rates of 95% by 2027 compared to just 8% today. And Arm CPUs will “launch changes affecting the global semiconductor industry.”
Broadcom (AVGO)
Data centers will also be the driving force behind Broadcom (NASDAQ:AVGO), a chipmaker best-known for its mobile handset chips. However, it recently shifted its focus to data center infrastructure and found its custom accelerators in high demand. AI, of course, was the primary factor behind the uptake, and Broadcom reported that its first-quarter AI revenue surged by 300% to $2.3 billion. AI is now forecast to total $10 billion this year, or 35% of the total.
According to industry analysts at Newark, support for AI demand will double the market for data centers by 2030, measured in gigawatts (GW). Data centers will absorb 35 GW by 2030, surpassing the 17 GW total needed in 2022.
What will help boost Broadcom stock investors to millionaire status by 2030 is not just the capital appreciation they will enjoy from its stock. They will see their returns juiced by the dividend the chipmaker has increased for 14 consecutive years. It has grown the payout at a 36% compounded annual growth rate (CAGR) over the last 10 years. The combination of share price growth and dividend payments will make investors fabulously wealthy and could push AVGO’s valuation to $1 trillion or more in the years ahead.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) was an early adopter of the AI regime, integrating the technology throughout its products and services. Through its investment in and partnership with OpenAI‘s generative AI chatbot Chat GPT, its Azure cloud computing infrastructure is completely infused with the technology.
Now, Microsoft is offering its cloud customers Advanced Micro Device’s (NASDAQ:AMD) AI chips as an alternative to Nvidia chips. It will provide for sale AMD’s MI300X chips, which are more powerful than Nvidia’s H100 chips. While Nvidia has come out with even more advanced semiconductors since, they are more expensive than the alternative that can also meet the AI needs of most customers. Microsoft also sells its own AI chips called Maia and is about to introduce a new processor called Cobalt 100 that reportedly offers 40% better performance than other processors based on Arm’s design.
Microsoft’s fourth-quarter revenue jumped 18% last, due to artificial intelligence boosting adoption of its products. Azure revenue alone jumped 30%. MSFT stock will be minting millionaires for years to come.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
