Big tech companies are spending heavily to stay at the forefront of artificial intelligence. Budgets for building AI data centers filled with GPUs and network switches jumped higher in 2024. And a recent update from Meta Platforms (META 3.91%) CEO Mark Zuckerberg says 2025 could see an even bigger jump in spending.
Zuckerberg said in a Facebook post that Meta will spend between $60 billion and $65 billion in capital expenditures in 2025. That's up from $38 billion to $40 billion in 2024, a 60% jump at the midpoint of each forecast. Despite previous comments from Zuckerberg hinting at a big increase in spending for 2025, analysts had expected Meta's capital investments to come in around $51 billion this year.
Zuckerberg's comments suggest big tech isn't even close to being done with spending on AI development as the arms race continues into 2025. That's great news for a few important Meta suppliers: Nvidia (NVDA 2.13%), Broadcom (AVGO 2.66%), and Arista Networks (ANET 1.34%).
Image source: Getty Images.
The building blocks of a data center
At the core of data centers focused on large language model training and inference are GPUs. In Zuckerberg's post, he said Meta will have 1.3 million GPUs by the end of the year. That's an increase from the 600,000 estimate Meta gave for the end of 2024.
Nvidia is the largest supplier of GPUs to Meta, and it's likely to stay that way in 2025. Nvidia's latest chips based on its Blackwell architecture promise 30 times the performance of its previous generation, with 25 times less cost and energy consumption. No competitor currently comes close to that level of performance out of the box like Nvidia's chips. And in a market where big tech companies are racing to stay ahead of one another, paying up for Nvidia's chips is the fastest path to stay ahead.
NASDAQ: NVDA
Key Data Points
But Nvidia isn't the only company Meta relies on for AI chips. Meta designs its own silicon, working closely with Broadcom, to handle specific tasks related to Meta's AI development and deployment. For example, the ranking and recommendation models that power Facebook and Instagram's feeds, Stories, Reels, video, and more are built on Meta's own AI accelerator chips. These custom-built chips are faster and more power-efficient than general-purpose GPUs.
Meta is working to expand the scope of its own chips to include generative AI, and it'll likely continue taking steps toward that goal in 2025. That's great news for Broadcom, which is a key technology provider for Meta in that endeavor.
All those GPUs and AI accelerators need an efficient way to communicate with one another and make sure data gets from one place to another quickly. That requires Ethernet switches. Ethernet switches are like traffic controllers for data centers. They route data from one server to another and make sure there's no congestion on the network slowing everything down.
Meta partners with Arista Networks to create hardware and software solutions for its data centers. With plans to open a massive data center full of GPUs in 2025, Arista will see a strong step-up in orders from Meta as well.
Inside those Arista Ethernet switches are more Broadcom chips. Broadcom makes the logic chips that allow the hardware to route data efficiently. So, the company plays both a supporting role for Nvidia's chips while offering a competing product to some degree.
NYSE: ANET
Key Data Points
Are these stocks a buy?
Zuckerberg's announcement is certainly great news for the continued demand for AI infrastructure, such as that provided by Nvidia, Broadcom, and Arista Networks. All three should see strong revenue growth in 2025, which should translate into a nice bump in earnings for investors.
But just because a company is poised to grow in 2025 doesn't make its stock an automatic buy. Valuation still matters. All three of these stocks saw their prices climb significantly higher as excitement around the increased demand for their products permeated the market. As a result, their stocks became priced for perfection.
We saw the impact of that pricing recently following the realization of what High-Flyer's LLM DeepSeek has been working on and the potential long-term implications. While Nvidia, Broadcom, and Arista Networks could still show great financial results in 2025, DeepSeek's innovations call into question how long big tech will sustain its spending on hardware before focusing on making its software more efficient.
All three stocks come with considerable risks and uncertainty. Nvidia stock looks attractive based on forward earnings estimates for fiscal 2026 (ending next January), but the potential for declining market share and pressure on pricing power are long-term challenges.
NASDAQ: AVGO
Key Data Points
Broadcom has a lot of upside as a designer of custom AI accelerators for Meta and other big tech companies, as well as creating essential chips for network switches. Its business is more diversified than Nvidia's, with some slower-growing segments outside AI-related chips. Still, it trades for a higher forward earnings multiple than Nvidia, based on Wall Street estimates.
Arista Networks is seeing great revenue growth, but its stock now trades for over 40 times forward earnings as of this writing. And that's after the impact of the DeepSeek news. Despite the strong demand for its hardware, the company isn't growing nearly fast enough to justify its current stock price.
While the comments from Zuckerberg may have provided some confidence in 2025 results for all three companies, the long-term questions and stock valuations make all three stocks risky to own. It may be worth it for some to add exposure to AI data center spending through these stocks, as long as investors remain mindful of the risks each poses and the constant changes happening in AI development.
