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Meta's Big Bet on AI: Great News for Nvidia, Broadcom, and Arista Networks Investors

AInvestSaturday, Feb 1, 2025 5:33 am ET
3min read


Meta CEO Mark Zuckerberg just shared some exciting news for investors in Nvidia, Broadcom, and Arista Networks. In a recent Facebook post, Zuckerberg announced that Meta will spend between $60 billion and $65 billion in capital expenditures in 2025, up from $38 billion to $40 billion in 2024. This significant increase in spending is a clear indication that Meta is committed to staying at the forefront of artificial intelligence (AI) development.

Zuckerberg's announcement suggests that big tech companies are not even close to being done with spending on AI development, as the arms race continues into 2025. This is great news for investors in Nvidia, Broadcom, and Arista Networks, as these companies are key suppliers to Meta's AI infrastructure.

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, 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.

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.

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. However, 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. 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 the information provided.

In conclusion, Meta's increased spending on AI development is great news for Nvidia, Broadcom, and Arista Networks investors. However, it's essential to consider the potential risks and uncertainties associated with each company's stock. As an investor, it's crucial to stay informed and make decisions based on thorough research and analysis.
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.