Four major tech companies are anticipated to collectively invest an estimated $300 billion in Artificial Intelligence (AI) by 2025, as predicted by a single Wall Street firm. This specific stock could potentially yield the most significant returns.
Four major tech companies are anticipated to collectively invest an estimated $300 billion in Artificial Intelligence (AI) by 2025, as predicted by a single Wall Street firm. This specific stock could potentially yield the most significant returns.
Artificial Intelligence (AI) represents the most prominent technological advancement in recent times. Its capability to produce text, images, videos, and code at an instant can lead to a remarkable surge in productivity across various businesses globally.
The sector is still in its infancy, but financial experts project that AI could contribute anywhere between $7 trillion and $200 trillion to the global economy over the subsequent decade. This significant growth has led to fierce competition among tech behemoths, prompting them to invest exorbitant sums in data center infrastructure and processors.
As per an estimation by investment bank Morgan Stanley, four major tech companies are likely to invest a combined $300 billion in capital expenditures (capex) by 2025. This spending surge is primarily driven by AI, with Nvidia (NVDA 3.08%) being the primary supplier of advanced processors for AI development, implying its stock may benefit the most from this boom.
To create more intelligent AI software, developers require more sophisticated large language models (LLMs), necessitating additional data and more significant processing power, which is expensive. Aside from well-funded AI start-ups like OpenAI and Anthropic, most enterprises cannot afford to establish their data centers. Instead, they lease computing capacity from tech giants developing centralized infrastructure.
Based on public filings, here's a breakdown of the capex allocation, including AI infrastructure, by some prominent tech conglomerates:
- Microsoft (MSFT -0.10%) spent $20 billion on capex for its fiscal 2025 first quarter (Sept. 30), after investing $55.7 billion during fiscal 2024.
- Amazon (AMZN 0.73%) plans to invest $75 billion in 2024 to bolster its AI endeavors.
- Alphabet (GOOG 1.72%) (GOOGL 1.54%) will allocate over $50 billion on capex by the end of 2024.
- Meta Platforms (META -1.73%) has set aside up to $40 billion on capex for 2021.
- Oracle (ORCL 0.52%) plans to invest $13.8 billion on capex during its fiscal year 2025, concluding in May.
- Even Tesla (TSLA -3.46%) will spend over $11 billion on AI infrastructure in 2024 to optimize its autonomous vehicle software.
Chips represent a significant portion of this investment. During 2023, Nvidia's H100 graphics processing units (GPUs) were the preferred choice for AI development, giving Nvidia a market share of 98%. These remain popular options, but Nvidia has recently launched its new Blackwell GPUs, offering a substantial improvement in performance.
Morgan Stanley's forecasts indicate that four tech giants will invest a combined $300 billion in capex in 2025. Based on these predictions:
- Amazon could invest $96.4 billion
- Microsoft could invest $89.9 billion
- Alphabet could invest $62.6 billion
- Meta Platforms could invest $52.3 billion
While we cannot accurately gauge how much of this money will be allocated to chips specifically, Morgan Stanley released an October forecast indicating that Nvidia could sell up to 800,000 units of its Blackwell-based GB200 GPUs during the first quarter of 2025, translating into potential revenue of $64 billion for the first quarter of 2025. This suggests substantial growth for Nvidia.
Reports suggest that Microsoft is the largest buyer of GB200 GPUs, and Nvidia mentioned that Oracle intends to construct a cluster using over 131,000 GB200 GPUs. The GB200 NVL72 system is notable for its 30 times faster AI inference compared to its equivalent H100 system, which explains the high demand for this product.
Given the significant investment in AI and the demand for Nvidia's Blackwell GPUs, Nvidia stock may experience considerable growth. Despite its 700% increase over the previous two years, Nvidia could still be considered underpriced.
As of this writing, Nvidia is projected to generate $129 billion in revenue during its fiscal 2025 (ending in January), and it maintains a high profitability level. Over the last four quarters, Nvidia has delivered $2.54 in EPS, giving it a P/E ratio of 53.5. However, the future looks even more promising as Wall Street's consensus forecast for Nvidia's fiscal year 2026 (beginning in February 2025) suggests the company could generate $4.43 in EPS on $195 billion in revenue.
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Due to this, Nvidia's shares are currently being traded at a projected price-to-earnings (P/E) ratio of merely 30.6. Essentially, the stock would need to surge by approximately 90% within the upcoming year to match its historical 10-year average P/E ratio of 58.8.
Additionally, there might be additional growth opportunities, considering Nvidia's recurring history of surpassing market analysts' expectations.
The significant investments in AI infrastructure by tech giants, such as Microsoft, Amazon, Alphabet, and Meta Platforms, have led to a high demand for advanced processors, with Nvidia being the primary supplier. This escalating demand could potentially drive up Nvidia's stock prices.
Financial analysts anticipate a combined $300 billion investment in capital expenditures (capex) by these tech companies by 2025, primarily driven by AI. To sustain and improve their AI software, these companies often lease computing capacity from tech giants, further fueling the demand for advanced processors like Nvidia's Blackwell GPUs.