Beyond the "Magnificent Seven": These 3 Breakout AI Stocks Are Disrupting the Industry

Back in 2023, a Bank of America analyst slapped a new label on a group of megacap tech stocks that had been dominating the stock market for a couple of years: The "Magnificent Seven." They are (in order of their current market caps):

1. Nvidia (NASDAQ: NVDA)
2. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)
3. Apple (NASDAQ: AAPL)
4. Microsoft (NASDAQ: MSFT)
5. Amazon (NASDAQ: AMZN)
6. Meta Platforms (NASDAQ: META)
7. Tesla (NASDAQ: TSLA)

All seven have made incredible technological breakthroughs and have helped shape the world we know today, and they've continued to lead the market in the years since 2023.

But I think there are three artificial intelligence (AI) stocks that are missing from this group that are equally worth investors' consideration, as the impact they're having in the AI realm is akin to what these seven did in the tech space in general.

The three stocks that I think will have a similar effect on the AI industry are Taiwan Semiconductor Manufacturing (NYSE: TSM), Broadcom (NASDAQ: AVGO), and Micron Technology (NASDAQ: MU). Two are valued in the neighborhood of $2 trillion, while even the smallest is close to $800 billion, so they'll feel right at home with the tech behemoths of the Magnificent Seven.

Image source: Getty Images.

Taiwan Semiconductor and Micron

Both Taiwan Semiconductor and Micron are chip fabricators. It doesn't take a genius to recognize that the AI build-out requires a ton of chips, and these are two of the biggest producers. Taiwan Semiconductor is a third-party foundry that makes logic chips designed by other companies, while Micron designs and manufactures its own memory chips. While the technologies and use cases for those types of chips are quite different, both are vital for a properly functioning computing device.

Taiwan Semiconductor is the largest logic chip manufacturer by far, and companies including Nvidia and Apple utilize it as their primary chip foundry. The memory chip market is a bit more commoditized, as there isn't much separating one manufacturer's products from another. This means the industry is ruled by supply-and-demand effects, and currently, there's massively more demand than the chipmakers can supply. That's giving Micron and its peers robust pricing power, and it's making a fortune. But they are also all racing to build more production capacity to meet that high and rising demand. Micron management projects the high-bandwidth memory (HBM) market will grow from $35 billion in 2025 to $100 billion by 2028. That indicates that the memory supply crunch is far from over, which will help Micron maintain its positions an incredibly important company in the AI realm.

Taiwan Semiconductor is also seeing growing demand, and it believes the compound annual growth rate (CAGR) of its AI chip revenue will be nearly 60% from 2024 to 2029. That points to a major market expansion for one of the most important companies in the AI field.

Broadcom

Broadcom is more of an Nvidia-style investment, but unlike the AI chip leader, it doesn't make general-purpose computing units. Instead, Broadcom works in partnership with each of its hyperscaler customers to make application-specific integrate circuits (ASICs) -- chips that are narrowly designed to handle the precise types of AI workloads they are expected to encounter. These ASICs are becoming increasingly popular because they are far more cost-effective than GPU-based computing for those tasks. However, if something changes, those chips can become obsolete. At this point, though, these workloads are established, and the risk of this happening is low.

As a result, Broadcom's AI business is booming. In Q1, revenues from its AI semiconductor division grew 104% to $8.4 billion. Custom AI chips are only a part of this segment, yet management informed investors that custom AI chips should surpass $100 billion in annual revenue by 2027. Considering Broadcom's revenue over the past 12 months was less than $70 billion, its growth over the next year could be incredible.

AVGO Revenue (TTM) data by YCharts.

This makes Broadcom an excellent AI stock pick and worthy of inclusion alongside names like Nvidia and Alphabet. Broadcom may have delivered strong returns over the past few years, but given the huge levels of AI-driven demand ahead, it's just getting started.

Keithen Drury has positions in Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Micron Technology, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.