The factitious intelligence (AI) trend has given big boosts to the share prices of Nvidia(NASDAQ: NVDA) and Taiwan Semiconductor Manufacturing(NYSE: TSM) over the past 12 months. The 2 chipmakers’ stocks rose by 204% and 121%, respectively, through the period, crushing the 35% gains recorded by the PHLX Semiconductor Sector index.
The large demand for powerful chips able to handling AI workloads in data centers has played a central role in driving those share price gains, with major cloud service firms and governments deploying large quantities of the AI-specific semiconductors designed by Nvidia and manufactured by Taiwan Semi. Market research firm Gartner estimates that global public cloud spending grew by 19.2% in 2024, and forecasts that it would grow at a faster pace of 21.5% in 2025.
Evidence that cloud spending will get stronger in 2025 has already began emerging. In a blog post earlier this month, Microsoft(NASDAQ: MSFT) Vice Chairman and President Brad Smith said the corporate “is heading in the right direction to speculate roughly $80 billion to construct out AI-enabled datacenters to coach AI models and deploy AI and cloud-based applications all over the world.”
This news points toward a solid 12 months for Nvidia and TSMC.
When Microsoft released its results for its fiscal 2025 first quarter, which ended Sept. 30, the corporate revealed that it had made capital expenditures of $14.9 billion on property, plant, and equipment. As such, its plan points toward a better level of quarterly capex spending — around $22 billion, on average — for the remainder of the fiscal 12 months.
For comparison, Microsoft’s total capital expenditure stood at $55.7 billion in fiscal 2024, so its capex is heading in the right direction to extend by greater than 43%. The tech giant has made it clear that the cash will go toward constructing AI data centers. So, Microsoft’s demand for the AI chips that Nvidia designs and TSMC manufactures should proceed to rise in 2025.
Microsoft, nevertheless, won’t be the one company significantly increasing its capital outlays for AI infrastructure. Meta Platforms, for instance, is predicted to report total 2024 capital expenses within the range of $38 billion to $40 billion, however it’s planning for “significant” growth on that front in 2025. In all, the combined spending of major cloud computing players Microsoft, Meta, Amazon, and Alphabet could reach $300 billion in 2025 from around $200 billion in 2024, in response to estimates from Morgan Stanley.
The addressable marketplace for AI chips is ready to expand considerably this 12 months. More importantly, there’s a superb probability that each of those semiconductor giants will give you the option to fulfill the terrific demand from the key cloud providers. That is because Microsoft CEO Satya Nadella recently remarked that the tech giant is not constrained for AI chip supply anymore.
That is not surprising. During Nvidia’s November earnings conference call, CFO Colette Kress said that in the present fiscal quarter, the corporate is “heading in the right direction to exceed our previous Blackwell revenue estimate of several billion dollars as our visibility into supply continues to extend.” What this implies is that Nvidia is producing more of its next-generation Blackwell processors than it was originally anticipating. The explanation why Nvidia now has greater visibility into its supply chain is because its foundry partner TSMC has been significantly increasing its AI chip production capability.
TSMC is predicted to double its advanced chip packaging capability in 2025 to 75,000 wafers a month. Furthermore, Nvidia has reportedly been allocated 60% of this increased capability this 12 months. So Nvidia and TSMC are in a solid position to benefit from the impressive increase in capital spending by the key cloud providers discussed above.
Analysts expect Nvidia’s earnings to extend by 50% in its fiscal 2026 (which is able to begin in February) to $4.43 per share. TSMC’s earnings, however, are expected to leap by 28% in 2025 to $9.06 per share. Nevertheless, the mix of increased capital spending by cloud service providers on AI data centers together with Nvidia and TSMC’s concentrate on quickly adding capability to serve that prime and growing demand should set them up for one more 12 months of terrific gains which will surpass Wall Street’s current expectations.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Gartner and recommends the next options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.