Why AI Stocks are Increasing: Broadcom, Lam Research, and Monolithic Power

On Wednesday, shares of several semiconductor companies related to artificial intelligence (AI) saw significant increases. Notably, Broadcom was up by 2.6%, Lam Research gained 4.1%, and Monolithic Power surged by 8.5% as of 1:12 p.m. ET.

While these three weren't the only chip stocks benefiting today, they represent a diverse range of products. Broadcom produces networking chips for AI applications, Lam Research specializes in etching and deposition equipment necessary for producing advanced chips, and Monolithic Power offers power management solutions for AI modules.

The surge in these stocks is likely linked to the recent announcement of the Stargate data center project, which was led by former President Donald Trump along with various AI technology firms.

What is Stargate?

On Tuesday, several major technology companies, such as Oracle, Softbank, and OpenAI, convened at the White House to unveil the Stargate initiative. This project is a cooperative venture aimed at developing next-generation AI infrastructure within the United States.

The announcement generated excitement among investors, particularly regarding the financial commitments associated with Stargate. The group revealed an initial investment of $100 billion, coupled with the potential for an additional $500 billion over the next four years for future expansions.

Although none of these companies manufacture their own chips at this time, the substantial investment likely indicates a high demand for Nvidia GPUs. Beyond Nvidia, Stargate will almost certainly utilize Broadcom’s Tomahawk and Jericho network chips for data switching and routing. Furthermore, producing leading-edge semiconductors involves rigorous etching and deposition processes, which bodes well for Lam Research, a leader in semiconductor manufacturing equipment.

As these massive data centers will require substantial power, Monolithic Power provides crucial power management systems, particularly at 48 volts, essential for many AI chip solutions. Although concerns have arisen that Monolithic Power may have lost market share within Nvidia systems—a worry that previously caused its stock to dip—the company is still expected to maintain a significant position in AI power modules. Recently, analysts at Oppenheimer identified Monolithic as one of their top AI stock picks for 2025.

A Note of Caution for Investors

While today's announcements indicate a growing interest in AI investments, it is wise for investors to temper their expectations regarding Stargate's potential impact. Notably, the initial $100 billion includes funds already allocated to a Texas data center that commenced construction last year, which was initiated under the previous administration. Thus, Stargate appears to be an extension rather than a completely new initiative.

Additionally, the sources of the funding remain uncertain. The Wall Street Journal noted that Oracle has $11 billion in cash available, Softbank has around $30 billion, and OpenAI is currently operating at a loss. Therefore, the viability of that $100 billion investment, and even more so the estimated $500 billion, may be questionable at this moment.

Nonetheless, this high-profile announcement follows other positive signals in the AI investment landscape, including a strong earnings report from Taiwan Semiconductor Manufacturing last week, and Microsoft's recent pledge of $80 billion toward its AI infrastructure this year.

As a result, the movement in AI infrastructure stocks today can be attributed to a combination of good news. Given that both Lam Research and Monolithic Power experienced disappointing performances last year, it is not surprising to witness their stocks bouncing back in this recovery.

Despite the positive news surrounding Stargate, caution is advised against overhyping preliminary announcements during this early timeframe of the new administration. For sustained growth, it will be essential to see continued AI investments and evidence that customers are achieving productivity gains from these substantial expenditures.

Stocks, AI, Investment