Two Artificial Intelligence-focused Stocks predicted to surge in 2025 by some Wall Street Experts, with a split not involving Nvidia or Broadcom.
In 2024, tech giants Nvidia and Broadcom rolled out 10-for-1 stock splits to make their shares more affordable. Their impressive growth in the thriving artificial intelligence (AI) economy had driven up their stock prices significantly. Similarly, lesser-known AI infrastructure companies Lam Research and Arista Networks conducted stock splits the previous year to tackle soaring share prices. Analysts, however, remain optimistic about future gains for shareholders in these companies.
Wall Street's most upbeat analysts on Lam Research, such as Krish Sankar from TD Cowen, have set a target price of $110 per share, which implies a 22% increase from its current price of $90. Meanwhile, Ryan Koontz from Needham has put Arista Networks at $145 per share, signifying a 45% rise from its current $100. Investors should approach these forecasts with a grain of salt, but given the potential expansion of AI infrastructure spending, both stocks are worth considering.
Lam Research: Foundation of Semiconductor Manufacturing
Lam Research plays a vital role in semiconductor manufacturing, starting with deposition. This process involves layering a silicon wafer with conductive and insulating materials. Lam's expertise lies in two primary wafer fabrication equipment (WFE) categories: etch systems, where it holds the number one spot, and deposition systems, where it ranks second behind Applied Materials. Lam's products are essential in both memory chip production and logic chip manufacturing, such as central processing units (CPUs) and graphics processing units (GPUs), for both foundry customers like Taiwan Semiconductor and memory chip producers.
Lam's financial results in the second quarter of 2025 demonstrate steady growth. Revenues rose 5% to $4.3 billion, while non-GAAP net income reached $0.91 per diluted share, an increase of 6%. The boom in AI demand necessitates more sophisticated semiconductor designs for chip and packaging levels. Lam is seizing these opportunities and aims to capture WFE market share this year.
Wall Street predicts Lam's adjusted earnings will grow at a rate of 10% throughout fiscal 2026. Although the current valuation of 26 "times adjusted earnings" seems pricey, the company's consistent performance has often surpassed Wall Street's expectations in the past.
One challenge for Lam is its substantial reliance on Chinese customers, accounting for approximately one-third of its revenue in the recent quarter, making China its most critical market. Global trade tensions between the U.S. and China could potentially pressure this figure. Investors might be more confident purchasing the stock after a 10% price drop, but keeping an eye on Lam remains a sound strategy.
Arista Networks: Pioneering High-Performance Networking Solutions
Arista Networks specializes in providing high-performance networking solutions for enterprise and cloud data centers, adding adjacent software for network automation, monitoring, and security. Its hardware collection includes switches and routers, boosted by innovative software features. Arista leads in high-speed Ethernet switch categories with more than double the market share of its closest competitor, Cisco.
Two crucial innovations that distinguish Arista from competitors are its single Extensible Operating System (EOS) for all hardware, simplifying network management, and its reliance on merchant silicon (third-party chips) instead of manufacturing customized chips, allowing for greater software development potential and customer flexibility.
Arista's Q4 results outperformed estimates, with revenue rising 19% to $7 billion and non-GAAP net income increasing 31% to $2.27 per diluted share. However, the stock price dropped following the report due to Meta Platforms accounting for 15% of revenue, down from 21% in the previous year. Nonetheless, Arista's earnings from enterprise customers such as Apple, Microsoft, and Oracle remained significant.
Data centers are expected to modernize their infrastructure to keep pace with AI advancements, offering a promising future for Arista's high-speed networking equipment. Wall Street anticipates Arista's adjusted earnings to increase at a rate of 14% annually through 2026, making the current valuation of 44 "times adjusted earnings" seemingly high. However, Arista's strong track record of beating Wall Street's earnings expectations justifies this estimation. A long-term investor perspective may make Arista Networks a smart buy.
- Lam Research's financial gains from selling deposition systems and etch systems, which are essential for producing CPUs and GPUs, contribute significantly to their revenue growth.
- Analysts suggest that despite the high valuation at a "times adjusted earnings" of 26, investors should consider buying Lam Research stocks due to the company's consistent performance exceeding Wall Street's expectations.
- Arista Networks, known for its high-performance networking solutions, is expected to see an increase in demand due to the need for modernizing data centers to keep pace with AI advancements, which could boost their earnings by 14% annually through 2026.
- In the realm of finance and investing, many tech companies, including Nvidia, Broadcom, Lam Research, and Arista Networks, have employed stock splits to make their shares more affordable, following the trend of impressive growth in the AI economy.
