AI’s Transformative Power: Investing in Tech Leaders Nvidia and ASML
The artificial intelligence (AI) revolution is not just another tech trend; it stands as a pivotal change in human history. Predictions from PwC Global estimate that AI could boost the global economy by $15.7 trillion by 2030, with $6.6 trillion from productivity and $9.1 trillion driven by consumption effects.
How can investors take advantage of this evolution? At the forefront are two tech giants holding strong positions in the AI value chain. This article explores the impressive competitive advantages Nvidia and ASML have developed, making their stocks appealing for long-term investment.
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Nvidia: The AI Acceleration Leader
Nvidia (NASDAQ: NVDA) dominates the AI computing sector with its powerful graphics processing units (GPUs) and the innovative CUDA software platform. This comprehensive ecosystem allows Nvidia to capture about 70% to 95% of the market share in AI accelerators, setting the benchmark for AI development.
Nvidia’s journey began with its gaming technology, which it converted into a robust foundation for AI computing. While other tech companies strive to catch up, Nvidia’s early investments in AI hardware and its proprietary CUDA platform create significant switching costs, deterring customers from leaving.
This leading position comes at a price, as Nvidia’s stock trades at 30.5 times forward earnings. Despite this high valuation, the market’s expectations may still underestimate its long-term growth potential.
As the global demand for AI data centers rises, Nvidia is well-positioned to support the innovation of the next decade. For investors, Nvidia represents a strong buy-and-hold candidate.
ASML: A Manufacturing Leader
ASML Holding (NASDAQ: ASML) is the sole producer of extreme ultraviolet (EUV) lithography machines—essential for advanced semiconductor manufacturing. Each of these sophisticated machines comprises over 100,000 parts and requires several 747 cargo planes for delivery, underscoring the intricate nature of its production.
The technological edge ASML enjoys comes from years of innovation and strong partnerships with research institutions and suppliers. Constructing a single EUV machine takes 12 to 18 months and can cost up to $380 million, reflecting the extreme engineering complexity involved.
Similar to Nvidia, ASML’s stock is priced at a premium, trading at 28.7 times forward earnings—above the S&P 500’s average of 24.1 times. This premium seems justified due to ASML’s unique market position and essential role within the AI supply chain.
With recent guidance indicating strong growth from AI data center expansion, ASML management forecasts the AI server market could reach $350 billion by 2030. Consequently, analyst Javier Correonero expects EUV spending to grow at an impressive 16% annually through the decade, positioning ASML as a strong option for investors looking for long-term AI investments.
Looking Ahead in AI
The advances in artificial intelligence could redefine the global economy in unprecedented ways. Some experts even speculate that attaining artificial general intelligence (AGI) might accelerate technological progress, condensing a century’s worth of advancements into just five years.
Both Nvidia and ASML have established strong competitive footholds in vital areas of the AI hardware ecosystem. Their dominant positions and ongoing innovation empower them to leverage the exponential growth expected in AI development. In an era potentially headed towards AGI, these industry leaders are poised to spearhead what may be one of the most significant shifts in human history.
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George Budwell has positions in Nvidia. The Motley Fool has positions in and recommends ASML and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
