Invest in AI: Two Chip Stocks for Long-Term Growth

Published Date : 20/07/2025 

The AI chip market is booming, and two top semiconductor companies, Advanced Micro Devices (AMD) and Broadcom, are well-positioned to deliver outstanding returns for long-term investors. 

The chip industry is booming thanks to the rapid advancements in artificial intelligence (AI). This has opened up significant opportunities for investors looking to capitalize on the growth of AI. According to MarketsandMarkets, the AI chip market is expected to grow at an annualized rate of 24% through 2029, reaching a staggering $311 billion. If you have $3,000 to invest, here are two chip stocks to consider buying and holding for the long term.

Advanced Micro Devices (AMD) has become a widely used brand of chips in the consumer PC market. Its Ryzen processors have taken significant market share from Intel. However, AMD's real strength lies in its position as one of only two suppliers, alongside Nvidia, of general-purpose graphics processing units (GPUs) that are used for AI workloads.

While Nvidia has a commanding lead in GPUs, it's not going to control 100% of the market. This leaves a substantial opportunity for the runner-up in this market to do well. AMD's data center business is booming, with segment revenue up 57% year over year in the first quarter. AMD is meeting demand for cost-effective alternatives in the chip market. Oracle is experiencing tremendous growth in its cloud infrastructure business right now, and it's a key partner for AMD. Oracle's cloud infrastructure will offer up to 131,072 AMD Instinct MI355X GPUs for AI. AMD has already announced the MI400 series for launch next year, which will enable even better performance for AI training and inferencing.

As data center sales make up a larger mix of AMD's total revenue, it is pushing margins up. Higher margins drove a 55% year-over-year increase in adjusted earnings last quarter. Given the long-term opportunity in the AI chip market, which AMD estimates at $500 billion, investors are undervaluing AMD's future earnings. The stock is trading at a forward price-to-earnings (P/E) multiple of 38 on 2025 earnings estimates. But this multiple drops to 25 on 2026 estimates. As AMD continues to expand margins from growth in its data center business, the stock could offer significant upside over the next few years and beyond.

Broadcom is another company meeting the insatiable demand for custom AI chips and networking solutions for advanced AI workloads. The company's focus on innovation and strategic partnerships has helped it capture a significant share of the market. Broadcom's AI solutions are designed to optimize performance and reduce power consumption, making them highly attractive to data centers and cloud service providers.

Broadcom's recent earnings reports have shown strong growth in its semiconductor solutions segment, driven by increased demand for AI and cloud computing. The company is also investing heavily in research and development to stay ahead of the curve in the rapidly evolving AI landscape. With a forward P/E ratio of 20, Broadcom is considered a relatively undervalued stock in the AI chip market, offering potential for significant returns.

In conclusion, the AI chip market is poised for substantial growth, and both Advanced Micro Devices and Broadcom are well-positioned to capitalize on this trend. If you have $3,000 to invest, consider these two stocks for long-term gains. Their robust business models, strategic partnerships, and strong financial performance make them compelling choices for investors looking to profit from the AI revolution. 

Frequently Asked Questions (FAQS): 

Q: What is the expected growth rate of the AI chip market?

A: The AI chip market is expected to grow at an annualized rate of 24% through 2029, reaching $311 billion, according to MarketsandMarkets.

Q: Why is AMD a good investment for the AI chip market?

A: AMD is one of only two suppliers of general-purpose GPUs used for AI workloads, alongside Nvidia. Its data center business is booming, with segment revenue up 57% year over year, and it is meeting demand for cost-effective alternatives in the chip market.

Q: How is Oracle related to AMD's AI strategy?

A: Oracle is a key partner for AMD, offering up to 131,072 AMD Instinct MI355X GPUs for AI in its cloud infrastructure. This partnership is crucial for AMD's growth in the AI market.

Q: What is Broadcom's role in the AI chip market?

A: Broadcom is meeting the insatiable demand for custom AI chips and networking solutions for advanced AI workloads. Its AI solutions are designed to optimize performance and reduce power consumption, making them highly attractive to data centers and cloud service providers.

Q: What is the current forward P/E ratio for AMD and Broadcom?

A: AMD is trading at a forward P/E ratio of 38 on 2025 earnings estimates, which drops to 25 on 2026 estimates. Broadcom has a forward P/E ratio of 20, making it relatively undervalued in the AI chip market. 

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