The artificial intelligence (AI) trend has greatly boosted the stock prices of major companies Nvidia (NASDAQ: NVDA) And Taiwanese semiconductor manufacturing (NYSE: TSM) the past year. Shares of the two chip makers rose 204% and 121% respectively during the period, crushing the 35% gain recorded by the exchange. PHLX semiconductor sector index.
The huge demand for high-performance chips that can handle AI workloads in data centers has played a central role in driving these price gains, with major cloud services companies and governments deploying large quantities of the AI-specific semiconductors designed by Nvidia and manufactured by Taiwan Semiconductors. . Market research agency Gartner estimates that global public cloud spending will grow 19.2% in 2024, and predicts it will grow faster by 21.5% in 2025.
There are already indications that cloud spending will strengthen in 2025. In a blog post earlier this month Microsoft (NASDAQ: MSFT) Vice Chairman and President Brad Smith said the company is “on track to invest approximately $80 billion in building out AI-based data centers to train AI models and deploy AI and cloud-based applications around the world.”
This news points to a solid year for Nvidia and TSMC.
When Microsoft announced its results for the first quarter of fiscal 2025, which ended on September 30, the company announced that it had made $14.9 billion in investments in property, plant and equipment. As such, the plan points toward higher levels of quarterly capital expenditures – an average of about $22 billion – for the remainder of the fiscal year.
By comparison, Microsoft’s total capital expenditures were $55.7 billion in fiscal 2024, so capital expenditures are on track to increase by more than 43%. The tech giant has made it clear that the money will go towards building AI data centers. So Microsoft’s demand for the AI chips that Nvidia designs and TSMC produces should continue to rise in 2025.
However, Microsoft won’t be the only company to significantly increase its capital expenditures on AI infrastructure. MetaplatformsFor example, total capital expenditures in 2024 are expected to be between $38 billion and $40 billion, but the company plans “significant” growth on that front in 2025. In total, the combined expenditures of the major cloud computing players Microsoft , Meta , AmazonAnd Alphabet According to estimates of Morgan Stanley.
The addressable market for AI chips will grow significantly this year. More importantly, there is a good chance that both semiconductor giants will be able to meet the tremendous demand from the major cloud providers. That’s because Microsoft CEO Satya Nadella recently noted that the tech giant is no longer restricted for the supply of AI chips.