Most of the growth in artificial intelligence (AI) has been driven by software and chatbots, but that means we haven’t seen anything yet. Morgan StanleyHis latest research says it’s still early in the half, with corporate spending estimated to reach $10 trillion in the AI investment cycle.
Investors can do well by sticking with blue chip leaders in the semiconductor industry, as chips are the foundation of AI. Here are two quality chip stocks with compelling valuations to start 2026.
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Training AI models requires a lot of processing power, which can sometimes mean thousands of graphics processing units (GPUs) running simultaneously in data centers. Nvidia(NASDAQ: NVDA) not only does it make the most powerful GPUs, but it’s also run by a smart management team that knows it needs to stay a few steps ahead of the competition to maintain its edge.
Demand for Nvidia’s chips remains robust, driving 66% year-over-year growth in its data center business last quarter. But it’s expanding its competitive moat by expanding beyond GPUs.
Nvidia offers complete computing systems that include multiple chips and components. Its new Rubin platform could be a game-changer when it starts shipping later this year. Compared to its current-generation Blackwell all-in-one platform, Rubin will use six different chips, including Nvidia’s Vera central processing units (CPUs), Rubin GPUs and Bluefield-4 data processing units (DPUs), to deliver about 5 times more than Blackwell makes, resulting in a powerful and more efficient AI supercomputer.
With Rubin, Nvidia provides the computing power to run tomorrow’s data centers or AI factories. Rubin promises to significantly reduce the cost of running advanced AI models for data centers. This will enable faster development and adoption of agentic AI that can perform a number of tasks autonomously for the user.
Nvidia is thinking about where AI is headed in 10 years and building the products needed for that future today. The incredible demand for its products means it is effectively printing money from the prices it can set, with net income reaching $99 billion in the past year on revenues of $187 billion. Nvidia’s profitability and dominant lead in the GPU market is why it has earned top status for investors.
Nvidia investors should expect solid returns from here, as the stock trades at a conservative 24 times forward earnings estimate. This valuation offers the potential for excellent returns in the short and long term.
Image source: Taiwan Semiconductor Manufacturing.
Taiwan Semiconductor Manufacturing(NYSE: TSM) belongs on any list of blue-chip AI stocks. It’s been around for decades, creating the chips that Nvidia and other companies design. Its competitive edge is based on extensive expertise and production capacity to meet a large volume of orders each year. The chips it makes are used in everything from data centers to smartphones.
TSMC sees strong demand for its services. In the fourth quarter, revenue in US dollars rose 25% year over year to $34 billion. It generates very high margins, reflecting its dominant market share. For the full year, it earned $55 billion in net income on $122 billion in revenue.
Investors may be concerned about the cyclical demand for tokens. Like any other business, TSMC typically faces weak demand during an economic downturn. But the company’s revenue has grown at a compound annual rate of nearly 17% over the past 10 years, which has included some economic shocks. Management expects demand for AI chips to grow by more than 50% on an annual basis through 2029.
The stock is priced even cheaper than Nvidia, trading at just 23 times forward earnings. Given TSMC’s dominant position in chip manufacturing, this reduction may understate long-term growth prospects. The investment in Taiwan Semiconductor could pay off not only in the long term, but also in 2026.
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John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) “Blue Chip” Stocks to Buy for 2026 and Beyond was originally published by The Motley Fool
