Artificial intelligence (AI) is expected to be big business in the long term. bank of america It is estimated that the widespread adoption of this technology could add $900 billion to the global economy by 2026. This number is expected to swell to a staggering $15.7 trillion by 2030.
The investment bank also added that AI models will be much more powerful than they are today. More specifically, BofA notes that AI models could be a million times more powerful than OpenAI’s chatbots within the next decade. But this is with the help of powerful chips with massive amounts of computational power and efficiency that can train complex AI models, use those models to perform inferences and provide responses in real time. only possible.
Why is demand for AI chips growing at a staggering pace, expected to reach $309 billion in 2030 compared to just $10 billion in annual revenue in 2021, according to Verified Market Research? This explains. Nvidia (NVDA 0.09%) Chip makers currently dominate the AI chip market, so this is one of the best ways to capitalize on this lucrative opportunity.
However, Dutch semiconductor standard bearer ASML (ASML -2.28%) It could also be the top market for AI chips, and even a better AI stock than Nvidia. Let’s see why.
ASML Why Nvidia Is Dominating AI Chips
Microchips contain a large number of electronic circuits with tiny electrical switches called transistors, and Nvidia has packed billions of transistors into its AI chips, giving them enormous computing power. is given. At the same time, the die sizes of Nvidia chips are shrinking, which means these transistors are packed more densely. Tightly packed transistors mean that electrons have to travel shorter distances in chips fabricated using smaller process nodes, making them more energy efficient.
This explains why Nvidia’s A100 data center graphics processing unit (GPU) based on a 7 nanometer (nm) manufacturing process is 3-6 times faster than the 12 nm V100 GPU. The chipmaker’s latest generation H100 Hopper GPU is based on a custom 5nm fabrication node and is reportedly 4x more powerful than A100 GPUs at training AI models.
The strong demand for these chips has allowed Nvidia to provide excellent guidance when it announced its first quarter 2024 financial results last month. The chipmaker posted a 64% year-over-year increase in revenue in the quarter to 110, largely driven by rapid growth in data center chips deployed by cloud service providers, internet companies and enterprises to power their AI infrastructure. We expect it to grow significantly to $100 million. .
But without ASML, Nvidia wouldn’t have been able to shrink the size of its chips and make them more powerful and power efficient. That’s because a Dutch company holds a monopoly on the market for EUV (extreme ultraviolet) lithography equipment, allowing chipmakers and foundry partners to shrink chip sizes.
According to ASML, EUV lithography will allow chip makers to “pack more and smaller transistors to make chips stronger, faster and more energy efficient.” More specifically, the Dutch giant’s machinery will allow semiconductor companies and foundries to manufacture advanced chips based on the 7nm, 5nm and 3nm nodes.
Not surprisingly, given the race to shrink chip sizes for applications such as AI, ASML’s EUV machines are in great demand. The company has a huge order backlog worth €39 billion at the end of the first quarter of 2023, well above its full-year sales forecast of €26 billion and 25% higher than its 2022 sales.
More importantly, Wall Street analysts predict that ASML’s revenue growth will accelerate significantly within the next few years.
ASML revenue estimation for current fiscal year data by YCharts.
In addition, ASML’s revenue growth is expected to drive healthy revenue growth as well.
ASML EPS estimates for current year data from YCharts.
ASML should be able to sustain such impressive levels of growth for much longer, given the growing demand for AI chips and the need for more EUV machines. Analysts therefore expect the company to grow annual earnings by 30% over the next five years. Interestingly, ASML’s revenue is expected to grow at a faster pace than Nvidia’s over the next five years, with the latter’s revenue expected to grow at just under 20% annually.
And looking at the company’s valuation, it’s clear that it’s the top AI stock to buy right now.
This valuation makes it easy to buy this stock
ASML stock trades at 39 times earnings and 11 times sales. This multiple makes it significantly cheaper than NVIDIA, which currently has a 205x price-to-earnings multiple and a 38x price-to-sales multiple.
From the discussion above, it’s clear that ASML may be one of the biggest beneficiaries of the AI boom, as ASML’s machines play a role in helping manufacture advanced chips such as Nvidia. That’s why investors looking to capitalize on this hot technology trend may want to buy ASML before it surges following this year’s 33% rise.
Bank of America is an advertising partner of The Motley Fool’s Ascent. Hirsch Chohan has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Bank of America, and Nvidia. The Motley Fool has a disclosure policy.
