The artificial intelligence (AI) revolution has triggered a multi-year investment cycle across the enterprise. Additionally, generative AI is now permeating various consumer internet applications. These trends bode well for AI wealth-building stocks.
In Q1 of fiscal year 2024, a huge moment of clarity appeared on AI spending as cloud service providers such as Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) increased their capital expenditure plans. Indeed, it was a stark reminder of the heavy investment needed to make AI applications and products a reality. Bank of America projects capex for Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Meta Platforms (NASDAQ:META) and Amazon will increase by $37 billion in 2024 to $145 billion.
Moreover, according to Capital Group, big tech giants are raising their capital expenditure budgets and will spend an estimated $500 billion over the next three years. This spending will go toward chips, particularly graphics processing units (GPUs) and application-specific integrated circuits (ASICs). Plus, a substantial proportion will cover memory, servers and network equipment. This means more profits will flow to these three AI wealth-building stocks.
Marvell Technology (MRVL)
Custom ASICs have emerged as an alternative to Nvidia’s H100 and B200 GPUs. After Broadcom (NASDAQ:AVGO), Marvell Technology (NASDAQ:MRVL) is the second-largest player in this fast-growing high-end market, with a 13-15% share.
JPMorgan analysts are bullish on Marvell Technology as one of the AI wealth-building stocks to buy. They forecast that the high-end ASIC market will grow to between $20 and $30 billion. Additionally, due to demand from generative AI, this market will grow at a 20% compounded annual growth rate.
Buoyed by this growth, the company’s AI revenues could skyrocket. Notably, the chip maker is working with various big tech companies on custom silicon. It has been collaborating with Google on its 5-nanometer Axion ARM CPU chip and Amazon on its 5-nanometer Tranium chip. Additionally, rumors are buzzing that it’s working with Microsoft on its Maia chip and Amazon on its Inferentia chip.
Considering these tailwinds, JPMorgan analysts think MRVL could generate $1.6 to $1.8 billion in revenues from networking and custom ASICs this year. Moreover, they expect AI revenues to double next year. Additionally, most analysts are extremely bullish, with 28 buy ratings and a median price target of $90, representing over 20% upside.
Micron Technology (MU)
After a 10% pullback, it is time to buy Micron Technology (NASDAQ:MU). The memory maker is among the best-positioned AI wealth-building stocks due to its high bandwidth memory (HBM). Importantly, HBM memory reduces bottlenecks, increasing training efficiency for large language models.
Although Micron Technology tumbled after Q3 of FY 2024 earnings, the results were stellar. The company blew past estimates, reporting revenues of $6.81 billion for the third quarter against estimates of $6.67 billion. Data center drove the strength as AI demand led to 50% quarter-over-quarter (QOQ) growth in the segment. Furthermore, the company grew its share in high-margin AI products such as data center solid-state drives and HBM.
Another impressive highlight was the company disclosing that HBM chips were sold out for 2024 and 2025. Due to robust demand, Chief Executive Officer (CEO) Sanjay Mehrotra noted in Q3 prepared remarks that Micron Technology was on track for record FY 2024 revenues. Besides, he expects this momentum to carry over into FY 2025.
Indeed, MU is set for a banner FY 2025 due to AI demand, making it one of the top AI wealth-building stocks. Moreover, an ongoing shift from commoditized memory to high-margin AI products will boost profitability.
ASML Holding N.Y. (ASML)
As demand for AI accelerates, semiconductor foundries and integrated device manufacturers are scrambling to increase capacity. This ramp-up spells opportunity for ASML Holding N.Y. (NASDAQ:ASML), the maker of EUV machines used to manufacture chips.
Several reasons prevail for maintaining a bullish stance on ASML. First, AI-related revenue is soaring due to memory demand driven by advanced memories such as HBM and DDR5. As a result, the semiconductor equipment maker is seeing increasing orders from memory makers like Micron Technology.
Secondly, the firm benefits from increased subsidies and grants to the semiconductor sector. Due to incentives and grants from laws such as the CHIPS and Science Act, chip manufacturers are opening new facilities. For instance, Micron Technology is constructing new fabs in New York and Idaho. In line with this expansion, it will spend $8 billion of capex in 2024 and increase it to a mid-30s percentage of revenue in 2025.
The outlook for ASML is very positive. Almost every foundry and integrated device maker is constructing new chip manufacturing facilities. Companies like Taiwan Semiconductor Manufacturing (NYSE:TSM), Samsung Electronics and Intel (NASDAQ:INTC) have broken ground on new projects in the U.S. and Europe. These facilities will be filled with ASML equipment, making the stock a top buy.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.