The stock market got crushed on Thursday, Nov. 5, led lower by artificial intelligence (AI) semiconductor stocks. The pullback followed the U.S. midterm elections, in which Democrats captured both the House and the Senate, as well as key governorships in states like Texas and Pennsylvania. Following the results, many newly elected officials spoke out against the ongoing data center build-out, calling for a moratorium.
However, any further weakness in AI infrastructure stocks could pave the way for an incredible buying opportunity that could help make investors a fortune. Hyperscalers (owners of large data centers) and chip companies have already pre-emptively been planning for a potentially more difficult political environment. Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), Microsoft, and Amazon have all been investing to expand their data centers overseas, and the backlash in the U.S. could increase this push. Meanwhile, companies are looking at the potential of moving data centers both offshore and into outer space. Earlier this year, China built the world’s first offshore wind-powered undersea data center, while SpaceX is aggressively pursuing plans to put data centers in space.
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AI companies are also exploring other ways to navigate the impending political shift in the U.S. Alphabet is teaming up with Bloom Energy on a self-sufficient AI data center with carbon capture that doesn’t use any grid power in the Republican stronghold of Wyoming. Meanwhile, Nvidia (NASDAQ: NVDA) is reportedly looking to buy and repurpose old telecom buildings into small data centers. These structures already have access to power and should face a lot less red tape in getting permits.
As such, just because the political climate has shifted against AI data centers, don’t expect the AI infrastructure build-out to suddenly slow down. With that in mind, let’s look at two AI chip stocks that could help make you a fortune on this pullback.
1. Nvidia
Nvidia remains the leading AI infrastructure company, as its graphics processing units (GPUs) are still the primary chips used to power AI workloads. The company has a wide moat in the training market, as most of the original AI code was written on its CUDA software platform and optimized for its chips. The company has also locked up the most future supply of high bandwidth memory (HBM), which all but assures it will maintain its leadership position.
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Importantly, the company has expanded its platform over the years, allowing it to capture an increasing share of the spending pie. With the addition of inference chips, central processing units (CPUs), networking, and an expanded software layer, Nvidia is now capturing around $40 billion per gigawatt for its Vera Rubin platform, up from $18 billion for its Hopper platform.
At a forward price-to-earnings (P/E) ratio of 12 times fiscal 2028 estimates (ending January 2028), the stock has a lot of upside from both growth and multiple expansion.
AVGO PE Ratio (Forward 1y) data by YCharts
2. Broadcom
While Nvidia dominates much of the AI chip market, large hyperscalers are increasingly turning to custom AI accelerators to help reduce costs, especially when it comes to inference. Broadcom (NASDAQ: AVGO) is the leader in this space, as it provides the necessary IP (intellectual property) and services to help turn customers’ designs into AI ASICs (application-specific integrated circuits), which are hardwired custom chips designed for specific purposes.
Broadcom helped Alphabet develop its highly regarded tensor processing units (TPUs), which the two companies are now starting to sell to external customers, with SemiAnalysis reporting that Anthropic, Meta Platforms, OpenAI, and Oracle are all TPU customers. This will be Broadcom’s biggest growth driver, with Anthropic expected to become its largest customer, while Alphabet will also remain a major client. Meanwhile, Meta and OpenAI have also developed their own custom chips using Broadcom’s help.
Broadcom has said it has a clear line of sight to doubling its AI chip revenue next fiscal year, then doubling it again to $230 billion in fiscal 2028. Investors seem to have their doubts, with the stock trading at below 10 times fiscal 2028 estimates, so Broadcom could make investors a fortune if it can attain this revenue goal.
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Geoffrey Seiler has positions in Alphabet, Amazon, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Bloom Energy, Broadcom, Meta Platforms, Microsoft, Nvidia, Oracle, and Space Exploration Technologies. The Motley Fool has a disclosure policy.
Semiconductor Crash: 2 AI Chip Stocks That Could Help Make You a Fortune Following the Pullback was originally published by The Motley Fool