Stocks

Two AI Stocks That Could Lead to Million-Dollar Returns

Published January 25, 2025

Artificial intelligence (AI) is on the verge of creating a significant impact on the global economy. According to market research firm IDC, the forecast suggests that by 2030, every dollar spent on AI-related business solutions and services will generate an impressive $4.60 in the global economy.

The firm also predicts that spending on AI could represent around 3.5% of the global gross domestic product (GDP) by 2030. Given these projections, investors should consider exploring some leading companies in the AI sector that are well-positioned to take advantage of this massive growth opportunity.

Making wise investments and holding onto robust companies that can benefit from the disruptive trends associated with AI could significantly boost an investor's wealth. For example, a mere $4,000 investment in stocks of AI leader Nvidia ten years ago would now be worth over $1.1 million. While not every stock may yield similar returns, the strong economic prospects linked to AI indicate that companies involved in this sector might contribute to a diversified portfolio worth a million dollars over time.

Here are two companies that have the potential to help investors grow their wealth substantially: Dell Technologies and Taiwan Semiconductor Manufacturing.

Dell Technologies

Dell Technologies has established itself by selling personal computers (PCs), peripherals, and server equipment, and the AI sector is expected to greatly enhance these areas. The AI server market alone is projected to generate an astounding $837 billion in revenue by 2030, with a compound annual growth rate (CAGR) of 34% leading up to that time.

Dell is already capitalizing on this fast-expanding market. In the quarter ending November 1, the company's infrastructure solutions group (ISG) saw its revenue rise by an impressive 34% year-over-year, with sales of networking equipment and servers contributing significantly; revenue from this sub-segment increased by 58% year-over-year.

The future looks bright for Dell's AI server business, which sold $2.9 billion worth of servers in the preceding quarter and received a record $3.6 billion in new orders during the most recent quarter.

As revenue from AI servers is projected to surge dramatically over the next five years, Dell’s revenue in this segment is likely to witness substantial growth. Some forecasts suggest that Dell's AI server revenue may reach at least $20 billion for the upcoming fiscal year 2026, marking a 94% increase from fiscal 2025 figures. It’s important to note that this estimate does not include potential market share increases, suggesting the actual numbers might exceed expectations.

Looking ahead, Dell appears poised to enhance its presence in the lucrative AI server market, which could significantly boost the company’s growth over time. With Dell's stock currently trading at 19 times trailing earnings, investing in this AI stock seems to be a compelling opportunity.

Taiwan Semiconductor Manufacturing

Although companies like Nvidia and Broadcom often capture attention in the AI accelerator market, Taiwan Semiconductor Manufacturing Company (TSMC) is a critical player as it manufactures the data center chips designed by these companies. TSMC boasts a diverse clientele, including tech giants like Sony, Apple, Qualcomm, and AMD.

This varied customer base puts TSMC in a strong position to benefit from various AI-related markets. The firm anticipates solid growth over the next five years. TSMC's fourth-quarter results for 2024 exceeded Wall Street's expectations, while its guidance surpassed analysts’ forecasts.

After experiencing a 37% year-over-year increase in Q4 revenue to $26.9 billion, TSMC is predicting a 34% jump in revenue for the current quarter to a midpoint of $25.4 billion. Additionally, TSMC projects a mid-20% revenue growth by the end of 2025, largely driven by demand for AI accelerator chips from companies like Nvidia, AMD, and Broadcom.

TSMC's management indicated during the recent earnings call that they expect revenue growth from AI accelerators to achieve a CAGR of nearly 40% over the five-year period starting with the already elevated base of 2024. This positions AI as a key growth factor for TSMC in the upcoming years, contributing to a projected five-year revenue CAGR of 20%.

Moreover, TSMC holds a commanding 64% share of the foundry market, well ahead of Samsung's 12%. This dominance offers TSMC significant pricing power, enabling the company to plan a 10% price increase on its silicon wafers in the year ahead.

As TSMC's robust revenue growth is likely to be matched by strong earnings growth, the market may respond favorably with higher stock prices. This makes TSMC an attractive stock, worthy of consideration for a potential millionaire portfolio, especially as it trades at a reasonable 24 times earnings estimates, despite having surged by 105% over the past year.

AI, Investing, Stocks