Key Points
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Nvidia and Broadcom are supplying a massive amount of computing equipment to data centers.
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Taiwan Semiconductor Manufacturing only needs increased spending to do well.
- 10 stocks we like better than Nvidia ›
This year, the four AI hyperscalers plan to spend around $650 billion in total on their data center capital expenditures. That’s a daunting figure, but it will likely be exceeded as hyperscaler spending projections creep up throughout the year. However, next year, this figure is on track to reach $1 trillion, according to Nvidia (NASDAQ: NVDA). That would be a major increase, but it’s in line with the language that some hyperscalers have already been using.
During its Q1 2026 conference call, one hyperscaler, Alphabet, told investors to expect “significantly” higher capital expenditures in 2027. Informing investors that early in the year about the following year’s guidance can only mean one thing: Prepare for a huge increase in spending. That jibes with Nvidia’s $1 trillion projection.
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If that pans out, the three that should be able to capitalize on increased spending more than any others are Nvidia, Broadcom (NASDAQ: AVGO), and Taiwan Semiconductor Manufacturing (NYSE: TSM). I think they offer investors huge upside potential, and represent some of the best buys in the market today.
Image source: Getty Images.
Nvidia
Nvidia remains front and center in the AI infrastructure build-out, as its GPUs and the equipment to support them have become the industry standard for data center computing power. Nvidia’s GPUs can handle a wide range of tasks, and their flexibility is paramount to their success. Its results continue to blow past expectations quarter after quarter, with last quarter’s revenue growing by 85% and next quarter’s revenue expected to nearly double year over year. Despite this incredible growth, the stock trades for just 22 times forward earnings, essentially pricing it like a market-average stock.
If hyperscaler spending hits $1 trillion next year, Nvidia will likely blow past analysts’ expectations again. That makes Nvidia a no-brainer investment right now.
Broadcom
Broadcom is one of the new kids on the block in the AI computing market, but it’s making a huge splash. Instead of competing head-on with Nvidia in the GPU market, it’s taking a different path. It’s partnering directly with AI hyperscalers to design custom AI chips called application-specific integrated circuits that are purpose-built for the narrow range of workloads they are expected to see. These chips are far more cost-effective than GPUs for the tasks they are designed to handle, but they won’t put Nvidia out of business because GPUs are still needed for many functions.
Broadcom’s major clients have been placing huge custom AI chip orders, and the company expects to generate $100 billion or more in AI semiconductor revenue during 2027. For reference, Broadcom generated $75 billion in total revenue over the past 12 months. So that growth in one segment will amount to a huge expansion, and if the AI build-out continues to pick up pace, Broadcom will be another strong stock pick.
Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSMC) is a different business than Broadcom or Nvidia, as those two chip designers are in a battle to gain and maintain market share within the data center market. TSMC is a chip manufacturer and has already cemented itself as the top option for chip production in nearly every industry. So, it doesn’t really care if it’s making a Broadcom chip or an Nvidia chip. All that matters to TSMC is that demand for high-end chips continues to rise.
Nvidia isn’t the only one forecasting long-term growth. TSMC CEO C.C. Wei stated during its most recent conference call that he sees chip demand staying strong through at least 2029 to 2030, and asserted that the AI build-out has essentially created a new industry segment. That’s great from a long-term perspective, and shows that TSMC will be a great stock pick not only for the rest of this year and into next, but for the remainder of this decade.
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Keithen Drury has positions in Alphabet, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
