The artificial intelligence (AI) trend has given a big boost to stock prices Nvidia(NASDAQ: NVDA) and Taiwanese semiconductor manufacturing(NYSE: TSM) during the last year. Shares of the two chipmakers rose 204% and 121%, respectively, during the period, toppling the 35% gain seen in Semiconductor sector PHLX index.
Huge demand for powerful chips capable of handling AI workloads in data centers has played a central role in driving these share price gains, with major cloud services companies and governments deploying large quantities of AI-specific semiconductors designed by Nvidia, and manufactured by Taiwan Semi. Market research company Gartner estimates that global public cloud spending grew by 19.2% in 2024 and predicts it will grow at a faster pace of 21.5% in 2025.
Evidence has already begun to emerge that cloud spending will increase in 2025. In a blog post earlier this month, Microsoft(NASDAQ: MSFT) Vice president and president Brad Smith said the company is “on track to invest approximately $80 billion in building AI-enabled data centers to train AI models and deploy AI and cloud-based applications around the world.”
This news points to a solid year for Nvidia and TSMC.
When Microsoft reported its results for the first quarter of fiscal 2025, which ended Sept. 30, the company revealed that it made $14.9 billion in capital expenditures on property, plant and equipment. As such, his plan indicates a higher level of quarterly capital spending — about $22 billion, on average — for the rest of the fiscal year.
By comparison, Microsoft’s total capital expenditures were $55.7 billion in fiscal 2024, so its capital expenditures are on track to increase by more than 43%. The tech giant has made it clear that the money will go towards building artificial intelligence data centers. So Microsoft’s demand for AI chips designed by Nvidia and manufactured by TSMC should continue to grow in 2025.
Microsoft, however, will not be the only company significantly increasing its capital expenditures for AI infrastructure. Meta platformfor example, it is expected to report total capital expenditures for 2024 in the range of $38 billion to $40 billion, but projects “significant” growth on that front in 2025. Overall, the combined spending of major cloud computing players Microsoft, Meta , Amazonand Alphabet could reach $300 billion in 2025 from around $200 billion in 2024, according to estimates from Morgan Stanley.
The addressable market for AI chips will expand significantly this year. More importantly, there’s a good chance that both of these semiconductor giants will be able to meet the incredible demand from major cloud providers. That’s because Microsoft CEO Satya Nadella recently noted that the tech giant no longer limited to AI chip supply.
That’s not surprising. During Nvidia’s November earnings conference callCFO Colette Kress said in the current fiscal quarter that the company is “on track to exceed our prior estimate of Blackwell’s revenue by several billion dollars as our supply visibility continues to increase.” This means that Nvidia is producing more next-generation Blackwell processors than it originally expected. The reason Nvidia now has more visibility into its supply chain is that its foundry partner TSMC has significantly increased its AI chip production capacity.
TSMC is expected to double its advanced chip packaging capacity in 2025 to 75,000 wafers per month. Moreover, Nvidia has reportedly been awarded 60% of this increased capacity this year. So Nvidia and TSMC are in a solid position to make the most of the impressive increase in capital spending by the major cloud providers discussed above.
Analysts expect Nvidia’s earnings to rise 50% in fiscal 2026 (which starts in February) to $4.43 per share. On the other hand, TSMC’s earnings are expected to jump 28% in 2025 to $9.06 per share. However, the combination of cloud providers’ increased capital spending on AI data centers, along with Nvidia’s and TSMC’s focus on quickly adding capacity to meet that high and growing demand, should set them up for another year of strong gains that would could exceed the current expectations of Wall Street.
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Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sharp Chauhan has no position in any of the listed stocks. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
