This article first appeared on our U.S. website.

If you’re looking to put $5,000 into artificial intelligence (AI) for next year, you’ll want to go with stocks that have strong growth and solid visibility. We’ll look at two stocks that fit the bill.

1. Broadcom

Broadcom (NASDAQ: AVGO) has become a force in the world of AI. The company has long been a strong player in data centre networking components that are needed to move data inside and between data centres.

However, its biggest opportunity lies in ASICs (application specific integrated circuits), which are custom chips that are pre-programmed to handle specific tasks. With companies looking to get the most out of their AI infrastructure spending and lower costs, they are increasingly turning to Broadcom to help design custom AI chips as an alternative to graphics processing units (GPUs).

Alphabet was one of the first companies to partner with Broadcom, and now its tensor processing units (TPUs) power much of Google Cloud’s AI workloads. It later added Meta Platforms and ByteDance as customers, and has projected that those three customers alone could represent a US$60 billion to US$90 billion revenue opportunity in fiscal 2027.

Broadcom also just recently announced a partnership with OpenAI to develop and deploy 10 gigawatts worth of custom AI chips and networking components by the end of 2029. To put that into context, a single gigawatt of data centre power typically translates into about US$35 billion in chip spending. As such, this could turn into a $100 billion annual market opportunity for Broadcom in a couple of years.

Meanwhile, Broadcom also said that a US$10 billion AI chip order from a unnamed fourth customers didn’t come from OpenAI. The company has reportedly been working with Apple, and this could be an indication that the iPhone maker is much further along in its custom AI chip design than expected.

With multiple customers now using Broadcom to develop custom AI chips, the company is well-positioned to see very strong growth in the coming years. That’s why it’s one of the best AI stocks to make an investment in right now.

2. Taiwan Semiconductor Manufacturing

Taiwan Semiconductor Manufacturing (NYSE: TSM) has become one of the most important companies in the AI industry, as chip designers such as Broadcom and Nvidia rely on it to make their most advanced chips. Producing chips at the smallest possible node sizes with high yields is extraordinarily difficult, but it’s where TSMC shines.

Nearly three-quarters of TSMC’s revenue now comes from chips made on 7-nanometer nodes or smaller, and its 3-nanometer technology has already become a meaningful contributor. The company plans to begin 2-nanometer production as soon as next year and is already looking toward moving to 1.6 nanometers.

TSMC’s ability to continue to push down node sizes while achieving high yields at scale has made it more than just a semiconductor contract manufacturer — it’s become a vital partner to leading chipmakers.

Demand for AI chips continues to fuel growth for TSMC, with the company reporting a 41% increase in revenue when it recently reported its Q3 results. Meanwhile, it expects to demand for AI chips to grow at a mid-40% compound annual growth rate (CAGR) over the next several years. Given that leading chipmakers need to work with TSMC to secure future capacity, it should have strong visibility into future growth.

Overall, TSMC remains one of the key players in global semiconductor supply chain. No matter which chip designer takes market share in the AI semiconductor space, they will all need TSMC’s fabs to make their chips. That’s why it’s one of the best AI stocks to own for next year and beyond.

The post 2 No-Brainer Artificial Intelligence (AI) Stocks to Buy for 2026 With $5,000 Right Now appeared first on The Motley Fool Canada.

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Fool contributor Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Apple (NASDAQ: AAPL) reported fiscal 2025 first-quarter earnings last week that topped analyst estimates but also contained some disappointing metrics. Share prices rose on the news, although the company reported a small year-over-year decline in iPhone sales for the quarter. There had been some hype over the past few months that the launch of a new iPhone that included artificial intelligence (AI) features back in September 2024 would spur a big upgrade cycle, but so far it hasn’t.

Let’s look at why investors seemed to shrug off the weak iPhone sales number, and at what to do with the stock from here.

Services revenue leads the way

In its fiscal Q1, Apple grew its revenue by 4% to US$124.3 billion; this came in just ahead of analyst expectations, as compiled by LSEG, of US$124.1 billion. Adjusted earnings per share rose 11% to US$2.40, topping the US$2.35 analyst consensus.

This was supposed to be the start of a big iPhone upgrade cycle, given that it was the first full quarter of sales for the new iPhone 16 since its launch, but that didn’t materialize. Instead, iPhone sales slipped nearly 1% year over year to $69.1 billion, falling well short of analyst expectations for US$71 billion in sales. Apple said iPhone sales were better in countries where Apple Intelligence, its version of AI, was available (it’s not yet available in China, for example). It expects to roll out the service in more languages in April.

However, overall product segment sales rose nearly 2% on the back of strong Mac and iPad sales. Mac sales climbed 16% year over year to US$9 billion, helped by the launch of new models that incorporate the latest M4 chip and Apple Intelligence. iPad sales jumped 15% to US$8.1 billion, powered by sales of both iPad Air and entry-level iPad models; Apple said that more than half of iPad sales were to new customers. Wearable sales slipped 2% to US$11.7 billion, which contributed to a tough comparison following the launch of Apple’s Watch Ultra 2 last year.

Nonetheless, it was Apple’s services segment, a historical producer of high gross margins, that was once again its star performer. This segment includes things like the App Store, cloud storage, subscriptions like Apple TV, and revenue from Google search. Revenue for the segment climbed 14% year over year to US$26.3 billion, while its gross profit jumped 18% to US$19.8 billion. The company said that paid subscriptions grew by double-digit percentages and that it now has over 1 billion paid subscriptions across its platform.

From a geographical perspective, China continues to remain a weak spot, with Greater China (which includes mainland China, Hong Kong, and Taiwan) revenue falling 11% year over year to US$18.5 billion. Apple said half the drop was due to a change in channel inventory. It’s hoping a recent government stimulus package will help improve the Chinese economy, thus helping sales.

Apple ended the quarter with approximately US$141 billion in cash and marketable securities and US$97 billion in debt, after generating US$27 billion in free cash flow in the quarter. It repurchased US$23.3 billion in stock during the quarter.

Looking ahead, it forecast that its fiscal Q2 revenue would grow by a percentage in the low- to mid-single digits. Service revenue is expected to increase by low double digits.

Should investors stick with Apple stock?

Apple has had its fair share of struggles growing its product revenue over the past couple of years, and the hope was that its new AI-powered iPhone would be the start of a big upgrade cycle. While that hasn’t happened, and the company continues to face challenges in China, it still has a strong business model in place.

This is seen in its services segment revenue, which continues to grow nicely. More importantly, this segment carries gross margins of around 75%, compared to around 39% for its product segment. That means that more of this revenue falls to the bottom line as profits. In addition, services revenue tends to be more “sticky”: It includes things like subscriptions that recur annually, compared to the sale of a device that might get replaced every few years.

From a valuation standpoint, Apple stock trades at a forward price-to-earnings (P/E) ratio of around 32 based on fiscal 2025 analyst estimates. This is pretty high from a historical perspective, for a stock that often traded at a trailing P/E below 20 back when it was growing faster.

AAPL PE Ratio (Forward) data by YCharts.

Part of Apple’s expansion in P/E is due to changes in its business composition over the years. Services have come to dominate the Apple story, and high-margin, recurring-revenue businesses typically command higher multiples than hardware-based companies. That said, I think the stock is toward the high end of its fair value range, so I wouldn’t chase it.

However, I think Apple stock should still be solid over the long term.

The post Should Apple Investors Worry About Falling iPhone Sales or Stick With the Stock? appeared first on The Motley Fool Canada.

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Fool contributor Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Apple. The Motley Fool has a disclosure policy.

Heads up! Nvidia is scheduled to report earnings this afternoon. You may want to consider the latest news before investing in the company.

Nvidia‘s (NASDAQ: NVDA) stock has been a huge winner over the past three years, as the company is the biggest early beneficiary of the artificial intelligence (AI) infrastructure buildout. The question, though, is where will the stock go next after such a huge run?

Let’s look at how Nvidia gained its dominant position and where the stock may be headed in the next three years.

Some smart moves and a little luck

Nvidia’s early ties were to the video gaming industry, where it developed graphic processing units (GPUs) to accelerate graphics rendering in video games. The company became a leader in the space, and in 2006, it created a free software platform called CUDA to allow programmers to program its chips directly. Because Nvidia was the leader in this big but fairly niche space, developers were generally taught to program GPUs using Nvidia’s CUDA software.

Eventually, GPUs started to spread to other applications, given their strong computing power. They began being used in the auto industry as well as with cryptocurrency mining. Nvidia has been talking about AI in the data center space for a while, and its acquisition of networking company Mellanox in 2020 pushed it further into the data center business.

However, last year, ChatGPT helped bring AI to the mainstream, and Microsoft‘s increased investment in and partnership with its creator OpenAI subsequently set off an AI infrastructure arms race. GPUs became the backbone of the AI infrastructure needed to train large language models (LLMs) and run AI inference, and Nvidia just so happened to be the leading GPU company in the world.

Moving forward

While Nvidia may not have predicted the sudden explosion of demand for GPUs related to AI, it had positioned itself as an AI leader in the data space well ahead of time. It had also created a wide moat for GPUs with its software platform many years ago. Since developers have been trained using its software, it takes time and becomes expensive to retrain developers to use software from competitors.

This, together with continued innovation, should help Nvidia hang on to its dominance in the GPU space. The company is accelerating its development cycle, taking it down from two years to now only one year. While there has been a delay, the company’s new Blackwell architecture should begin shipments at the end of the calendar year or early 2025. Meanwhile, it has already announced its new Rubin architecture, which it is looking to launch in 2026.

This increased innovation cycle should both help Nvidia keep its technological lead and maintain pricing power.

From there, it becomes mostly about demand and how many chips Nvidia can supply. On the demand side, it still appears the AI infrastructure buildout is in the early innings, with cloud computing and other big tech companies all ramping up AI-related capital expenditures (capex).

Both Meta Platforms and Alphabet have acknowledged there being more risk in under-investing in AI capacity than over-investing, while Meta also noted that its Llama 4 LLM will likely need 10 times the computing power as Llama 3. Meanwhile, the computing power needed for more advanced LLMs should only grow. This means more GPUs will be needed in the future.

Where the stock can head in 3 years

Nvidia’s revenue growth will slow from the triple-digit pace at which it has been growing. However, given the heavy demand for Nvidia’s chips and the spending commentary from large customers, it seems plausible the company could increase revenue by 30% to 50% a year over the next three years. With analysts predicting fiscal year 2025 (ending in January) revenue to be around $121 billion, that would equal fiscal year 2028 revenue (basically 2027 as it ends in January 2028) of $330 billion, projecting revenue growth of 50% next year, 40% the year after, and 30% in fiscal year 2028.

If the company’s adjusted operating expenses increased an average of 13% quarter over quarter through fiscal year 2028 (similar to last quarter’s sequential growth) with a 20% tax rate on its operating income, Nvidia would generate about $166 billion of annual earnings, or $6.76 per share, by fiscal year 2028.

The data above is based on the author’s hypothetical projections, which are above analyst consensus estimates for FY2026 through FY2028. Actual future results may vary.

With slower growth, Nvidia’s forward price-to-earnings ratio (P/E) would come down. However, if it were to grow revenue 30% in fiscal year 2028, a multiple of 30 to 40 times on the stock in 2027 would seem reasonable. That would value the stock between $200 and $270 per share in three years. As such, there is a good possibility that Nvidia’s stock could once again double from where it is now in three years.

The post Where Will Nvidia Be in 3 Years? appeared first on The Motley Fool Canada.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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 Fool’s board of directors. Fool contributor Geoffrey Seiler has positions in Alphabet. The Motley Fool recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

Billionaire Paul Singer and his fund, Elliott Investment Management, is making waves. The fund had been in active discussions with Starbucks on a turnaround plan that subsequently saw the company name a new CEO. It’s also been in a very public fight with Southwest Airlines and just nominated 10 new board members for the airline.

In tech land, meanwhile, the fund dumped its shares of Nvidia (NASDAQ: NVDA) while starting a new position in Arm Holdings (NASDAQ: ARM).

The sale of Nvidia isn’t surprising after Elliott called artificial intelligence (AI) “overhyped” in a letter to shareholders earlier this month. He added that the technology consumes too much energy and will never become cost-efficient. The letter added that Nvidia was currently in “bubble land.”

Instead, it appears Singer and company are placing their bets on fellow chipmaker Arm in the technology space.

What makes Arm different?

While Nvidia has been greatly benefiting from increased spending related to the AI infrastructure buildout, Arm has been a big beneficiary of the proliferation of smartphones. In fact, its technology can be found in virtually all smartphones around the globe.

Arm also has a very different business model than Nvidia. While Nvidia designs it own chips, Arm licenses its technology for use by other chipmakers. The company then collects royalties, based on the number of chips shipped built on its architecture. Once its technology is designed into a product, Arm can collect royalties for years or even decades. The company has said that nearly half its royalty income comes from products released between 1990 and 2012.

More recently, Arm has been shifting customers to a subscription model where they can get access to a broad array of the company’s intellectual property. At the end of Q2, it had 33 customers using its Arm Total Access platform and 241 using its Arm Flexible Access platform.

While the company is the leader in the smartphone space, it’s now looking to take a major share in the Windows-based personal computer (PC) market. The company has a goal of gaining at least 50% market share in the space in the next five years.

It’s already in all Mac-based computers and will look to capitalize on PC makers trying to make their laptop designs more similar to MacBook Airs. It’s also been taking share in the automotive market, seeing growth of 28% in the vertical in Q2.

While Elliott has recently said that AI is overhyped, Arm has also been benefiting from the AI buildout. On its Q2 earnings call, the company said it was seeing increased licensing in the AI data center due to the need for customization, which then requires Arm-based chips.

The company also has a collaborative chip with Nvidia called the Grace Hopper, which integrates an Arm-based central processing unit (CPU) with a Nvidia Hopper graphics processing unit (GPU). It will also be designed into Nvidia’s next-generation Grace Blackwell chip.

In addition, Arm technology has been used for new CPU data center chips from both Alphabet and Amazon. While Arm isn’t benefiting as much as Nvidia from the buildout of AI infrastructure, it’s still benefiting. Meanwhile, cloud computing companies continue to pour money into building this infrastructure.

Is it time to buy Arm?

Elliott’s investment in Arm likely extends a bit beyond the company to its largest shareholder Softbank (OTC: SFTBF), which owns about 90% of the chipmaker. In June, it was revealed that Elliott had taken an over $2 billion stake in the Japanese investment firm. Elliott has called for Softbank to buyback $15 billion in stock, while the company recently announced a lesser $3.4 billion repurchase plan.

Given Elliott’s comments on AI, the fund also probably would like Softbank and Arm to move away from their plans to develop their own AI chips and build out AI data centers around the globe. It’s also possible that Elliott has taken an anti-AI stance to try to persuade Softball and Arm of this and, instead, buy back its stock.

Elliott has stakes in both Softbank and Arm, so the fund’s ultimate play is unknown. Looking at Arm in isolation, its stock trades at a forward price-to-earnings ratio (P/E) of 63.5 times, based on 2025 analyst estimates. That’s exponentially more expensive than Nvidia, although Arm arguably has one of the most attractive business models in the chip space, given the amount of time it collects royalties on products, as well as the license revenue it generates.

ARM PE Ratio (Forward 1y) data by YCharts.

Following Arm’s recent pullback, I think the stock is more attractive now than previously. Still, I’d prefer to take a start position and dollar-cost average into the stock on any future weakness than pile into it at this time, given its valuation. Meanwhile, if Elliott is correct that AI is overhyped, its Arm investment isn’t immune to an AI downturn.

The post A Billionaire Just Sold Nvidia to Buy This Chip Stock appeared first on The Motley Fool Canada.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. Fool contributor Geoffrey Seiler has positions in Alphabet. The Motley Fool recommends Alphabet, Amazon, Nvidia, and Starbucks. The Motley Fool has a disclosure policy.