Investors have been snookered by technology head fakes in the past. The metaverse was hardly the game-changing advance we were promised. Very few people, it turns out, actually want to be connected to their computers all day, every day to work, play and interact. The metaverse may hold some value but the exponential market opportunity analysts predicted seems way off the mark.
Artificial intelligence (AI) is different. Today, businesses are realizing tangible real-world benefits of utilizing AI. Speed bumps will emerge along the way, of course. Energy consumption is going to strain just how far the technology can go. Water for cooling systems will divert an already scarce resource from other equally vital needs. But unlike the metaverse, AI is the real deal.
Nvidia (NASDAQ:NVDA) has been one of the primary beneficiaries of the early stages of AI’s breakout. Its advanced graphics processing unit (GPU) chips were readily able to handle the complex and all-consuming nature of AI’s demands. But with more competition developing equally powerful chips, Nvidia stock may not be the winning play it once was.
The following three companies are AI stocks to outshine Nvidia in the next stage of the technology’s evolution and growth.
Broadcom (AVGO)
Although best known as a smartphone chipmaker, Broadcom (NASDAQ:AVGO) flies under the radar of many investors as an AI stock. They might be surprised to learn Broadcom is actually the second-largest AI chipmaker by revenue behind Nvidia.
The chipmaker generated $4 billion in annual AI revenue last year but reported $2.3 billion in the first quarter, quadruple the year-ago figure. It estimates 35% of fiscal 2024 revenue will come from AI, or some $10 billion. Previously the chipmaker forecast a quarter of its revenue, or $8 billion, would be from AI but growth is accelerating.
The reason for the increase is data center demand from hyperscalers. Broadcom’s custom AI accelerators are behind the designs of the Tensor Processing Units (TPU) from Alphabet (NASDAQ: GOOG)(NASDAQ:GOOGL). Also, it designed a custom chip for Meta Platforms (NASDAQ:META). At its investor day in March, Broadcom announced it signed on a third large cloud customer for its AI accelerators.
Look for the chipmaker to readily surpass Nvidia in the near future.
Marvell Technology (MRVL)
Marvell Technology (NASDAQ:MRVL) is another surprising AI chipmaker that is on a path to outshine Nvidia. The chipmaker is looking for AI revenue to double this year and then keep doubling for several years thereafter. It expects to generate $2.6 billion in AI sales by 2026.
It counts Amazon (NASDAQ:AMZN) as a customer, and earlier this month announced it won another large customer for its AI chips. The one downside for Marvell Technology is that its custom chips carry lower gross margins than its off-the-shelf chip business.
Yet, custom chips will be a significant driver of future revenue growth. And Marvell Technology is looking to make up in volume what it loses in margins. For that reason, the chipmaker maintained its gross margin forecast when it reported earnings recently. Marvell says adjusted gross margins will be between 62% and 63% in the fiscal first quarter.
Where the chipmaker is expected to excel is in the electro-optical chips that sell into data centers and AI networks. With both channels anticipated to see significant expansion in the coming years, Marvell Technology will experience rapid growth.
Taiwan Semiconductor Manufacturing (TSM)
The last stock that should outshine Nvidia in the future is Taiwan Semiconductor Manufacturing (NYSE:TSM). As the world’s largest chip foundry pureplay, just about every chipmaker turns to TSM to make its chips – Nvidia included.
When the chipmaker reported earnings the other day, it shook the market by implying a slowdown coming in the semiconductor market. However, it forecast its own business to keep growing with guidance of “low- to mid-20%” revenue growth. AI was the primary reason for it.
Chief Executive Officer (CEO) C.C. Wei said the contract manufacturer was still experiencing a “surge in AI-related demand.” He termed it “insatiable.” It is yet another semiconductor stock expecting AI to cause revenue to “more than double this year.” TSM forecasts AI will represent a “low-teens” percentage of full-year sales.
With Nvidia, Broadcom, Advanced Micro Devices (NASDAQ:AMD) and even Intel (NASDAQ:INTC) as top customers, so long as their respective AI business grows, you can be sure Taiwan Semiconductor Manufacturing will outshine them all.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.