Key Points
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Thanks to AI, the chip industry is booming.
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With advanced microdevice, margins and revenues are skyrocketing as data center business grows.
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Broadcom meets the insatiable demand for custom AI chips and networking solutions for advanced AI workloads.
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10 stocks I like more than advanced microdevice›
As artificial intelligence (AI) affects every sector of the economy, there are several ways investors can benefit from this opportunity. However, recent revenue results show that top semiconductor companies are still well put into place to provide significant returns to long-term investors.
According to Marketsandmarkets, the AI chip market is expected to grow from 24% annually to 24% annually from 2029. If you have $3,000 you are about to invest in now, here are two chip stocks to consider buying and holding in the long term.
Where would you invest $1,000 now? Our team of analysts revealed what they believe 10 Best Stocks Buy now. learn more “
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1. Advanced Micro Devices
Advanced Micro Devices (NASDAQ:AMD) It has become a brand of chips widely used in the consumer PC market. Its Ryzen processors have a large market share Intel. But it is also one of two suppliers, nvidiaa general purpose graphics processing unit (GPU) used for AI workloads.
Nvidia has a leadership leader in the GPU, but does not control 100% of the market. This leaves us with a great opportunity to see if the runner-up in this market will work. AMD's data center business is booming, up 57% year-on-year in the first quarter.
AMD meets the demand for cost-effective alternatives in the chip market. Oracle Currently, our cloud infrastructure business is growing significantly and is an important partner for AMD. Oracle's cloud infrastructure provides AI with up to 131,072 AMD instinct MI355X GPUs. AMD has already announced the MI400 series for release next year. This further improves AI training and speculation performance.
Data center sales are pushing the margins up as they constitute a larger combination of AMD's total revenue. Higher margins resulted in 55% year-on-year increase in revenue adjusted for the last quarter. Given the long-term opportunities in the AI chip market, which AMD estimates at $500 billion, investors are underestimating AMD's future revenues.
The stock is trading at multiples of 38 (P/E) on 2025 earnings estimates. However, this multiple drop is estimated to be 25 in 2026. As AMD continues to expand its margins from the growth of its data center business, the stock could offer significant benefits over the next few years or more.
2. Broadcom
Beyond the burgeoning demand for general-purpose chips supplied by AMD, there is a growing demand for chips designed for special tasks. Broadcom (NASDAQ: AVGO) It is one of the best stocks to profit from the demand for custom chip solutions.
Broadcom has been the best semiconductor company for many years and offers components to many markets. apple'' iPhone. However, the demand for AI application-specific integrated circuits (ASICs) is off the charts.
The company's AI chip revenues rose 46% year-on-year in the most recent quarter. As demand for custom ASICs grows, it also drives demand for networking products that can handle faster data transfers needed for the next level of AI performance.
Broadcom's new Tomahawk 6 Ethernet Switch has enough data capacity to support 100,000 AI chips that work together to train next-generation AI models. The company's networking business has achieved revenue growth of 170% year-on-year compared to the previous quarter, accounting for 40% of AI-related revenue.
However, management sees demand for custom AI chips that outweigh networking products' sales over time. As evident from Broadcom's momentum, it is a great opportunity. Management expects AI growth to remain stable throughout fiscal year 2026, which could support new highs in stocks.
Broadcom has achieved a very high margin, so favorable demand points to robust revenues over the next year. The stock will trade 41x this year's consensus revenue estimate, but next year's estimate will see multiple declines down to 33. Although these are not cheap valuation times, investments in AI technology are showing significant growth in the coming years for major ship manufacturers, which should support investors' excellent returns.
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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of Motley Fool. John Ballard has an advanced microdevice and Nvidia position. Motley Fools introduces and recommends advanced microdevices, Alphabet, Apple, Intel, Microsoft, Nvidia, and Oracle. Motley Fool recommends Broadcom and the following options are recommended: A $395 phone with Microsoft length for January 2026, a $24 call with Intel in August 2025, a $405 call with January 2026 short term Microsoft. Motley Fools have a disclosure policy.
Disclaimer: Information only. Past performance does not indicate future results.
