Is This the Best Stock to Own for the Next Decade of AI Expansion?

Artificial intelligence (AI) has been the primary driver of the current bull market.

AI is the theme that connects the "Magnificent Seven" companies. And their tremendous growth -- combined with investors' seemingly insatiable demand for AI-related stocks -- over the past decade has put the market cap of each of the seven above $1 trillion. As a result, the seven tech giants now account for 37% of the S&P 500's market cap.

But I would argue that none of the Magnificent Seven stocks is the one to own for the next decade of AI expansion.

Instead, you can make a strong argument that Applied Materials (NASDAQ: AMAT) will be that stock. The company doesn't make artificial intelligence chips like Nvidia and Advanced Micro Devices. And it doesn't provide AI services like Apple, Alphabet, or Microsoft.

AI picks and shovels

But Applied Materials does make the systems used to produce most new chips and advanced displays globally. And that makes it the ultimate AI pick-and-shovel play.

Image source: Getty Images.

In fact, most of the world's largest semiconductor manufacturers are Applied Materials customers. That includes Nvidia, Intel, Samsung, Taiwan Semiconductor Manufacturing, Broadcom, ASML Holding, Micron Technologies, and Texas Instruments. And there are many, many more.

None of these companies can manufacture their chips without the material deposition, atomic etching, precision measurement, and packaging equipment that Applied Materials supplies. It is the largest U.S. manufacturer of semiconductor equipment.

The company's closest competitor is Lam Research, as both firms target the deposition and etch equipment categories. Applied Materials' semiconductor equipment market share was 17.4% in 2024, while Lam's was 13.1%. ASML Holding had the largest market share, at 20.2%, but it focuses on the high-end lithography market, so it doesn't fully overlap with the other two firms' target markets.

Trade risks

There are definitely risks related to geopolitical and trade tensions for Applied Materials. A little more than a third of the company's revenue comes from the Chinese market, so a U.S.-China trade war would be highly detrimental to Applied Materials' top and bottom lines. In fact, in the company's fiscal third-quarter results, it warned of potentially lower sales in Q4 due to uncertainties related to China.

As a result of ongoing trade issues, as well as uncertainty about trade policy out of the White House, short-term results for Applied Materials may be a bit rocky. Last month, the company said it expected the expansion of the U.S.'s restricted export list would subtract some $600 million from fiscal 2026 revenues. In addition, the memory chip industry tends to be cyclical.

And in October, the company announced planned layoffs of 4% of its 36,100 full-time employees, or about 1,400 people. It said that "automation, digitalization, and geographic shifts are redefining our workforce needs and skill requirements." It added that the cuts will make it more competitive and productive.

Massive upside potential

But those are largely short-term issues. Over the longer term, semiconductor sales are expected to explode. Deloitte forecasts that semiconductor sales will hit $697 billion this year, up 11% from 2024. It sees sales reaching $1 trillion by 2030 and doubling to $2 trillion by 2040.

Applied Materials will report its fiscal fourth quarter results next week, on Nov. 13. Analysts expect full fiscal 2025 revenue to rise 4% and earnings per share to grow 8.1%.

The stock is already up 48% this year (at the time of this writing) and 245% over the past five years, taking its market cap to about $192 billion. That's far smaller than the stratospheric market caps of the Magnificent Seven firms. But the upside for Applied Materials is hard to overestimate given the tremendous expected growth of semiconductor sales, much of it driven by artificial intelligence.

Matthew Benjamin has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Alphabet, Apple, Applied Materials, Intel, Lam Research, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2025 $21 puts on Intel. The Motley Fool has a disclosure policy.