Three prospective AI-focused stocks that could profit from the $500 billion Stargate Project
With criticism subsiding over potential deceleration in AI infrastructure spending, President Donald Trump's recent announcement of the Stargate AI project has proven to be a breath of fresh air. Funded by OpenAI, Oracle, and Softbank, this consortium plans to shell out an impressive $500 billion over the next four years, primarily on constructing data centers to accommodate the escalating AI workload.
The project initially aims to build 10 data centers, eventually expanding to 20. Construction in Abilene, Texas, has already commenced, with Softbank, the project's primary financial backer, set to inject $100 billion immediately into the venture.
Oracle, Nvidia, and OpenAI will collaborate to develop and operate the computing system, while OpenAI will oversee operations. With such a monumental project underway, let's delve into three potential AI infrastructure winners:
1. Nvidia
In light of the project, Nvidia is poised to reap substantial rewards. The company will play a significant role in outfitting the data centers with its graphic processing units (GPUs), given its 90% dominance in the GPU market. With an influential role in the project and impressive market share, Nvidia will likely be the exclusive supplier of GPUs for these data centers.
Prior research suggests that when companies like Microsoft talk about their AI capital expenditure (capex) spending, approximately half goes towards assets with long-term lifespans, while the other half is directed towards GPU and CPU servers. As such, most of the project's costs are likely to be allocated towards Nvidia's GPUs.
Stargate's announcement could prompt further data center investment among prominent tech players, such as Microsoft and Meta Platforms. With Nvidia as their largest client, these investments could further solidify Nvidia's position in this high-growth niche. Currently, Nvidia's forward price-to-earnings (P/E) ratio sits at a reasonable 32.5 based on 2025 expert estimates, and its price-to-earnings-to-growth ratio (PEG) is at 1. A PEG below 1 often suggests undervaluation, even for growth stocks with PEGs exceeding their typical threshold.
2. Oracle
Oracle's inclusion in the Stargate consortium candles its ambition to assert a dominant role in the cloud computing market, which currently holds a 3% share for Oracle than its competitors. By collaborating with OpenAI and Nvidia, Oracle aims to strengthen its presence in the cloud computing sphere by leveraging the latest AI advancements.
Oracle reported brisk revenue growth in its cloud business during its previous quarter, with cloud revenue jumping 24% year-over-year to $5.9 billion. An impressive 52% increase in cloud infrastructure revenue to $2.4 billion and a 10% uptick in cloud application revenue to $3.5 billion further bolsters its position. Its Oracle Cloud Infrastructure (OCI) consumption revenue exhibited a 52% surge, while GPU consumption skyrocketed by 336%.
Including Oracle in the Stargate project indicates that the company is geared to capitalize on the potential revenue growth that this ambitious undertaking could present. While construction and deployment of the initial data center would take time, expect Oracle to serve as a significant growth driver in the coming years.
Morgan Stanley has estimated that a single Stargate data center could contribute as much as $10 billion in annual revenue by fiscal year 2027.
3. Taiwan Semiconductor Manufacturing (TSMC)
Although not directly involved in the Stargate project, TSMC stands to gain due to the rise in demand for sophisticated processors and semiconductors, which are critical to building cutting-edge AI equipment. As several companies pivot towards AI infrastructure spend, TSMC's revenue growth and competitive edge could further intensify.
Recent market trends manifesting in TSMC’s performance include its superiority in 3-nanometer and 5-nanometer technologies, making it the unchallenged leader in high-performance computing. Its robust performance has extended into the financial realm, with Q4 revenues surging 37%.
TSMC's competitive strengths have also provided strong pricing power, resulting in annual gross margin improvements of 600 basis points to 59% in Q4. With Stargate, Microsoft, and Meta Platforms' AI infrastructure expenditures imminent, anticipate TSMC's channel profits to remain buoyant for years to come.
TSMC's share price also presents an attractive proposition, with a forward P/E ratio capped below 25 times 2025 analyst estimates.
The Stargate project's primary financier, SoftBank, has earmarked an initial investment of $100 billion for the venture, showcasing the significant role of finance and money in this AI endeavor.
Given Oracle's inclusion in the Stargate consortium, the company is poised to leverage its strength in cloud computing and AI advancements to potentially generate substantial revenue increases, further solidifying its position in the market.
