Key Points
Artificial intelligence (AI) stocks are back, helping the Nasdaq Composite index stage a huge rally after falling into correction territory in March. The AI build-out continues to steam full-speed ahead, and with five companies alone planning on spending a massive $700 billion in data center-related capital expenditure (capex) this year, the amount of money being tossed around in the AI race is just staggering. With AI viewed as a once-in-a-generation opportunity, this is a high-stakes game with growth being fueled by companies with big pockets that is likely to last many years.
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Even the war with Iran and closure of the Strait of Hormuz doesn’t look like it can upend this long-term secular trend. About 30% of the world’s helium, which is essential in the chipmaking process, passes through the Strait. However, this is highly unlikely to disrupt the AI boom. AI chips undoubtedly will get priority from foundries, and even if helium costs skyrocket, it is still a tiny part of the overall chipmaking cost that can be easily absorbed.
Let’s look at two AI stocks that can continue to help lead the Nasdaq’s rally.
AMD: The data center CPU leader
The next big bottleneck in the AI infrastructure boom is central processing units (CPUs). As agentic AI begins to take off, more high-performance CPUs are needed to help coordinate workflows and orchestrate AI agents. This isn’t just speculation anymore, as the evidence is mounting.
In late March, Arm Holdings announced a major shift in its intellectual property licensing and subscription model and said that for the first time, it would create its own chips, citing the huge surge in demand for high-performance data center CPUs it expects. The company is hoping to capture a 15% market share in what it sees becoming a $100 billion market in the next five years.
Meanwhile, Intel just reported blowout first-quarter results on the back of server CPU demand. The company said the importance of CPUs is increasing and that its customers are reconfiguring the ratio of AI accelerators, like graphics processing units (GPUs), to CPUs in their data centers.
The company best positioned to benefit from this trend, though, is Advanced Micro Devices (NASDAQ: AMD). It is the leader in the CPU data center space, and it is soon set to introduce a new high-core-count CPU designed specifically for agentic AI. Cores are important since each core can handle a different task. Prices are on the rise due to CPU shortages, and higher-core CPUs will bring higher prices as well.
Throw in the opportunity AMD has with its GPU deals with Meta Platforms and OpenAI for inference, and this is a stock with huge growth opportunities ready to keep leading the Nasdaq higher.
Amazon: An under-the-radar chip play
Most people don’t think of Amazon (NASDAQ: AMZN) as a chip play, particularly when it comes to CPUs, but the company has actually been making custom CPUs since 2018. It recently said customers have been asking for its entire supply of Graviton CPUs, and it then turned around and signed a multiyear deal with Meta to supply the social media giant with its CPUs.
Amazon is also seeing strong momentum with its custom AI accelerators. It built an entire data center dedicated to Anthropic that was completed toward the end of last year using its Trainium chips, and the two companies recently extended their partnership, with Amazon investing another $5 billion into the large language maker. Anthropic, meanwhile, agreed to spend around $100 billion on AWS computing services over the next decade.
With Amazon’s cloud computing business starting to accelerate and its e-commerce business seeing great operating leverage from its AI and robotic investments, this is a stock that can continue to rally.
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Geoffrey Seiler has positions in Advanced Micro Devices, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Intel, and Meta Platforms. The Motley Fool has a disclosure policy.
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