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

Since I began my investing journey about 10 years ago, I’ve witnessed my share of emerging themes built on hype, euphoria, and hope. From blockchain technology to the metaverse, I don’t think I’ve seen anything quite like the excitement around the artificial intelligence (AI) megatrend.

Since OpenAI commercially launched ChatGPT on Nov. 30, 2022, the S&P 500 has returned 66% while the tech-heavy Nasdaq Composite has soared by more than 100%. In case you’re new to investing, these are abnormally high returns for such a short time period.

^SPX data by YCharts

That said, the AI revolution has been anything but ordinary. One company in particular — semiconductor powerhouse Nvidia (NASDAQ: NVDA) — has emerged as the most potent company in the tech sector over the last few years. And I don’t think its momentum is slowing anytime soon.

Let’s explore how Nvidia became the most powerful force in the AI arena and assess what catalysts are on the horizon.

How and why Nvidia became king of the AI realm

Back in the late 1990s, Nvidia developed a piece of hardware known as the graphics processing unit (GPU). At the time, these chips were primarily used for one application: enhancing visuals for video games.

However, the company’s visionary CEO, Jensen Huang, understood that the GPU was far more ubiquitous. While use cases remained limited for years, the rise of AI paved the way for Nvidia to make a splash given these applications’ need for higher processing power.

Today, Nvidia is the gold standard for training and inferencing myriad generative AI products — from humanoid robotics, autonomous vehicles, and large language models (LLMs).

NVDA Revenue (TTM) data by YCharts. Currency in U.S. dollars.

Unprecedented demand for Nvidia’s GPUs has ushered in a wave of historical revenue acceleration that’s been augmented with record profit growth — a testament to the company’s enormous pricing power in the chip market.

Perhaps unsurprisingly, Nvidia has seen its market value rise by a factor of nearly 13 times during the AI revolution — propelling the company past Apple and Microsoft as the most valuable business in the world.

Tailwinds worth trillions

At its core, a large portion of Nvidia’s future growth can be summed up by one accounting term: capital expenditures (capex). Capex is just Wall Street jargon for spending related to infrastructure and property buildouts, such as data centers.

AMZN Capital Expenditures (TTM) data by YCharts, Currency in U.S. dollars.

Over the last three years, hyperscalers have collectively spent several hundred billion U.S. dollars on capex — much of which has been allocated to procuring Nvidia’s GPUs. While investors may be wary that demand is peaking, think again.

According to Huang, AI infrastructure buildouts are in their early innings. He expects capex to accelerate to US$4 trillion by 2030. Management consulting firm McKinsey & Company is even more optimistic — calling for nearly US$7 trillion to be spent on data centres, networking equipment, and renewable energy services to keep up with chip and power demand through the rest of the decade.

Piggybacking off of this opportunity is an emerging service called the neocloud. Companies such as Nebius Group, CoreWeave, and Iren are pioneers of the neocloud movement — a business model in which businesses equip data centres with GPUs and then rent that hardware to other companies.

The value proposition of infrastructure services is that it helps mitigate supply chain bottlenecks while offering companies with limited financial resources access to industry-leading AI development protocols. This is important for Nvidia, as neocloud providers help ensure demand for the company’s chips remains steady.

Lastly, Nvidia has been using some of its excess cash flow to strike a number of strategic partnerships. Perhaps most notable was a deal announced last month with Intel. As part of their alliance, Intel will be designing custom CPUs for Nvidia’s infrastructure — potentially giving the chip behemoth even more of a leg up in its chief rival, Advanced Micro Devices.

What will Nvidia’s stock price be in three years?

The secular tailwinds explored above — namely, accelerating capex from hyperscalers — has one analyst on Wall Street, Beth Kindig of the I/O Fund, forecasting a market capitalization of US$6 trillion for Nvidia by the end of 2026 — a target that I, too, think is well within reach.

Furthermore, I recently broke down in a separate article what growth rates would be required in order for Nvidia to reach a US$10 trillion valuation by 2030.

By 2028, I think Nvidia could be trading around the midpoint of the ranges above — close to US$8 trillion. But what does that mean in terms of share price? Let’s break down the math.

Nvidia currently boasts a market value of roughly US$4.5 trillion and has 24.3 billion outstanding shares. This translates to a share price of about $185. For the sake of this analysis, I’ll hold the company’s share count steady. This means an US$8 trillion valuation would yield an implied future share price of about US$329 — representing 78% upside from current levels.

For investors, the key here is not to get too hung up on the precision of future price targets. After all, the analysis above is more of a theoretical exercise — having a bit of fun with numbers.

While I do not have a crystal ball, I remain bullish over Nvidia’s prospects over the next few years as AI infrastructure spending continues to accelerate and view the stock as a compelling buy-and-hold opportunity.

The post Prediction: This Will Be Nvidia’s Stock Price 3 Years From Now appeared first on The Motley Fool Canada.

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Fool contributor Adam Spatacco has positions in Nvidia. The Motley Fool recommends Nvidia. The Motley Fool has a disclosure policy.

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

After plummeting by 33% back in 2022, the Nasdaq Composite (NASDAQINDEX: ^IXIC) has staged a remarkable comeback fueled by one unstoppable megatrend: artificial intelligence (AI). From cutting-edge semiconductors powering hyperscale data centres to cloud platforms deploying generative AI at scale, investors are witnessing the dawn of a new industrial revolution.

With trillions of dollars of AI infrastructure spending set to reshape the global economy, there may be no better time to put $1,000 to work in the companies driving this transformation.

Three standouts dominate this next wave of growth: Nvidia (NASDAQ: NVDA), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). Each plays a unique yet indispensable role in the AI ecosystem — and each still offers significant long-term upside for patient investors.

1. Nvidia: The engine powering the AI revolution

It’s nearly impossible to talk about growth stocks today without mentioning Nvidia — the company that has become virtually synonymous with the AI boom. Nvidia’s graphics processing units (GPUs) form the backbone of the world’s most advanced data centres, powering the training and inference of large language models (LLMs), autonomous systems, and next-generation smart devices.

But Nvidia’s dominance extends far beyond hardware. The company’s CUDA software platform has created one of the most tightly integrated ecosystems in the tech industry — a moat so deep that competitors struggle to disrupt it or convince developers to switch. As hyperscalers like Meta Platforms, Oracle, Microsoft, and Amazon race to expand their AI infrastructure, demand for Nvidia’s chips — particularly its Blackwell architecture — continues to surge at an unprecedented pace.

With these powerful tailwinds, Nvidia’s growth runway looks extraordinary. Some analysts project the company’s future market value could reach between US$10 trillion and US$20 trillion in the long run — implying more than 300% upside from current levels.

2. Taiwan Semiconductor: The sleeper “picks-and-shovels” play

While Nvidia commands the spotlight, Taiwan Semi quietly makes the entire chip industry possible. As the world’s largest and most advanced contract chip manufacturer, TSMC fabricates the cutting-edge semiconductors that power everything from AI accelerators to Internet of Things (IoT) devices and smartphones.

The company’s importance to the global tech ecosystem can’t be overstated. Major chip designers — from Nvidia and Advanced Micro Devices to Apple — rely on TSMC’s unmatched precision and process innovation. Its leadership in advanced node technology has cemented a commanding lead over rivals like Samsung and Intel — allowing it to set the pace for the entire semiconductor industry.

As worldwide demand for high-performance computing and AI infrastructure surges, TSMC stands to benefit from powerful secular tailwinds driving record levels of capital expenditure (capex) across the chip supply chain. Meanwhile, the company’s geographic diversification strategy, including new fabs in the U.S., adds a layer of resilience that should appeal to Western developers and governments alike.

For investors seeking a durable pick-and-shovels play in the AI gold rush, TSMC is hard to beat.

Image source: Taiwan Semiconductor Manufacturing.

3. Alphabet: The overlooked AI powerhouse

Alphabet may not be the flashiest AI stock, but it’s arguably the most deeply woven into our everyday lives. The company’s vast ecosystem — spanning Google Search, YouTube, Android, and Google Cloud — gives it unparalleled access to both consumer and enterprise data, creating a powerful foundation for AI-driven innovation.

Alphabet is now embedding AI across nearly every corner of its business. Its flagship AI platform, Gemini — the company’s answer to ChatGPT — is reshaping everything from Google Search queries and Workspace tools like Sheets and Docs to YouTube’s recommendation engine. 

On the enterprise front, Google Cloud continues to gain momentum against rivals like Microsoft Azure and Amazon Web Services (AWS) — highlighted by recent megadeals with Meta Platforms and OpenAI.

What makes Alphabet so compelling is its ability to monetize AI across multiple verticals — advertising, cloud computing, and workplace automation software. With one of the strongest data moats and balance sheets in tech, Alphabet isn’t just adopting AI; it’s redefining how the world interacts with it.

The bottom line: 3 AI leaders, 1 long-term opportunity

The chart below illustrates trends in the forward price-to-earnings (P/E) ratios of Nvidia, Taiwan Semi, and Alphabet over the last five years.

NVDA PE Ratio (Forward) data by YCharts. Calculations based on U.S. dollars.

Nvidia’s premium multiple reflects investor conviction in its unmatched dominance as the engine of AI computing. As demand for next-generation GPUs and AI infrastructure continues to surge, the company’s earnings growth could easily support even higher valuations.

Taiwan Semi, meanwhile, maintains strong pricing power as the world’s most advanced chip manufacturer. As AI chip production scales globally and new fabrication capacity comes online, TSMC’s profitability and valuation multiples could both see meaningful upside.

Alphabet, by contrast, trades at the most modest multiple of the group — a sign that it may be undervalued relative to its broad, diversified exposure to AI across many use cases and applications.

Collectively, all three stocks are trading at or below prior peaks in valuation ratios, despite enjoying more catalysts than ever before. This disconnect suggests room for valuation expansion as AI adoption deepens across every major industry.

The post 3 Growth Stocks to Invest $1,000 in Right Now appeared first on The Motley Fool Canada.

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Fool contributor Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

The very idea of investing during a recession might seem counterintuitive, but believe it or not, recessions can end up being incredibly lucrative opportunities. Why? Well, not all businesses are as sensitive to recessions as you might think. For example, I see these two artificial intelligence (AI) stocks as essentially recession-proof businesses thanks to their high levels of resiliency.

1. Microsoft

The chart below highlights Microsoft‘s (NASDAQ: MSFT) revenue and net income trends between January 2007 and December 2009. I deliberately chose this period because it shows the picture before, during, and after the Great Recession, which ran from December 2007 to June 2009 (the grey-shaded area of the chart).

Do you notice anything a little peculiar about Microsoft’s business trends during the Great Recession?

MSFT Revenue (Quarterly) data by YCharts.

Although its revenue experienced some noticeable volatility throughout the Great Recession, Microsoft’s sales actually remained higher during most quarters of that downturn than they were just prior to it. More importantly, its profitability did not take an overly pronounced hit either.

The only real blemish on Microsoft’s business during that period came in the form of a sharp downturn in the quarter that ended June 30, 2009 — right around the conclusion of the Great Recession. But it rebounded spectacularly just six months later when it generated $19 billion in sales and $6.7 billion of profit in its fiscal 2010’s second quarter. That was thanks in part to its successful launch of Windows 7.

Microsoft’s ability to generate growth even during times of widespread economic crisis and come out the other side stronger underscores the company’s success in its relentless pursuit of innovation. Over the last several decades, Microsoft has evolved from a PC software powerhouse into a much more diversified business with segments spanning hardware devices, workplace productivity software, cloud computing, gaming, social media, and AI.

To me, Microsoft is one of the best stock picks in the tech sector, and would still be a prudent choice for investors to buy even during a recessionary period.

2. CrowdStrike

I’d understand if you’re scratching your head at the notion that a volatile growth stock such as CrowdStrike (NASDAQ: CRWD) could be considered recession-proof. But one way to help identify recession-proof businesses is to look at what a company actually sells. For example, does it sell things people actually need or are its wares merely nice to have?

I’d argue that CrowdStrike’s services fit squarely into the “something people need” category. Businesses can’t really afford to disengage from data and identity protection or network security just because there is an economic downturn.

This makes cybersecurity platforms such as CrowdStrike more resistant to economic downturns than other areas of the software market. Need some proof? The narrow grey-shaded column in the graph below illustrates the COVID-19 recession — which lasted from February 2020 to April 2020.

CRWD Revenue (Quarterly) data by YCharts.

Right around the onset of the pandemic, CrowdStrike began a period of accelerating sales growth. Of course, a big influence was that organizations had a heightened need for stronger cybersecurity as employees around the world traded office cubicles for work-from-home situations. Yet even several years after the crisis phase of the pandemic ended and social distancing efforts faded, CrowdStrike’s revenue continued to soar, and the company is now consistently profitable.

As it turns out, CrowdStrike swiftly implemented strategies including flexible payment packages to encourage customer retention. All told, management is forecasting a $60 million impact to revenue as a result of these retention packages. Considering that CrowdStrike boasts $3.9 billion in annual recurring revenue (ARR), I wouldn’t be too worried about a $60 million headwind. I think this speaks volumes about both the need for cybersecurity services generally and CrowdStrike’s capabilities specifically.

Given that CrowdStrike has managed to navigate two Black Swan-style events in recent years and maintain healthy levels of revenue and profit, I see the stock as a solid opportunity even during times of economic uncertainty.

The post Opinion: These 2 Artificial Intelligence (AI) Stocks Are Recession-Proof appeared first on The Motley Fool Canada.

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Fool contributor Adam Spatacco has positions in Microsoft. The Motley Fool recommends CrowdStrike and Microsoft. The Motley Fool has a disclosure policy.

Over the last 18 months or so, the capital markets have kicked into a new gear thanks in large part to the technology sector’s interest in artificial intelligence (AI).

Among AI’s hottest opportunities are the “Magnificent Seven” — a moniker used to collectively describe mega cap tech businesses Microsoft, Meta, Apple, Tesla, Amazon, Alphabet, and Nvidia (NASDAQ: NVDA).

At the moment, Nvidia is arguably playing the most important role in the AI revolution as the company’s graphics processing units (GPU) remain in high demand and are a key feature of countless generative AI applications.

But with shares of Nvidia soaring over 125% in just the last 12 months, it’s reasonable to wonder how much higher the stock can go.

Let’s explore the current state of Nvidia’s business to get an understanding of why the stock has moved up so sharply. Moreover, a thorough analysis of the competitive landscape in the chip and data center space will help shed light on where Nvidia shares could be headed.

Nvidia dominates the chip market, but…

Right now, Nvidia’s H100 GPUs are used by some of the world’s largest companies to help train sophisticated large language models (LLMs) and even help develop autonomous driving software. The company augments the H100 chip line with sibling GPUs known as the A100 and Blackwell series, and are currently developing successor chips known as Rubin.

Given this rapid pace of innovation, it’s not surprising to see Nvidia’s revenue soar to new heights.

NVDA Revenue (Quarterly) data by YCharts

What is a little bit unique, however, is that it’s not just sales that are soaring for Nvidia. The company’s impressive roster of chips and data center services has given it an edge over the competition. For this reason, Nvidia has attained strong pricing power, which is directly leading to meaningful margin expansion and accelerating profits.

How long can Nvidia keep the lead?

While the financial profile above looks great, smart investors understand the dynamics of supply and demand.

Considering Nvidia outsources heavily to Taiwan Semiconductor to actually manufacture its GPUs, there is some underlying execution risk. In other words, if Taiwan Semiconductor’s capabilities cannot keep pace with demand trends, Nvidia could face an unwanted backlog jam.

This dynamic creates an opportunity for competitors to emerge and offer alternative solutions to customers that were waiting in line for Nvidia products.

As far as direct competition is concerned, both Advanced Micro Devices and Intel are seen as emerging forces in the GPU realm. With that said, I think it will take some time for AMD’s MI300X chip and Intel’s Gaudi 3 GPU to gain significant traction in the market and start to eat away at Nvidia’s dominating performance.

My contrarian take on Nvidia’s future is that the company will face significant competition outside of traditional semiconductor businesses. Namely, over the last year Amazon has poured billions of dollars into its AI endeavors — many of which revolve around chip development.

Amazon invested $4 billion into an AI start-up called Anthropic to help accelerate growth in its cloud computing business. As part of the deal, Anthropic is training its AI models on Amazon’s homegrown Trainium and Inferentia chips. Moreover, earlier this year Amazon revealed its plan to invest $11 billion into data centers in Indiana.

Another Magnificent Seven company looking to make waves in the chip space is Meta. Interestingly, Meta is currently a customer of Nvidia.

However, the company has been hard at work developing its own chip, called the Meta Training and Inference Accelerator (MTIA), as a way to keep most of its tech stack in house and migrate away from external sources.

Where could Nvidia stock be five years from now?

The chart below shows Nvidia’s stock trend over the last 10 years. While it’s historically been a good stock to own, clearly there have been some outsized gains in just the last two years.

NVDA data by YCharts

While I do not think Nvidia is facing an existential crisis by any means, I do think investors need to be considering the long-term implications of rising competition as well as the dynamics of the chip industry.

Demand for semiconductors tends to be cyclical. Although Nvidia does have other opportunities in AI-powered software, these products are meant to be used in tandem with its GPUs. For these reasons, I would not be surprised to see a slowdown in Nvidia’s business at some point. This could lead to compressed margins and decelerating cash flow growth.

By contrast, I think big tech businesses such as Amazon and Meta have an interesting opportunity to enter the chip space and gain ground on Nvidia all while being diversified enough to generate growth from other business segments as well.

As Nvidia continues to mature as a business, I think it’s natural that its growth will eventually become more protracted. For these reasons, I think there is a good chance Nvidia stock’s returns will normalize over the coming years and could be outmatched by other opportunities among mega-cap tech.

The post Where Will Nvidia Stock Be in 5 Years? 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. 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Intel, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.