The 8 Best Stocks to Buy on Alphabet's Surging Capex

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) continues to ramp up its artificial intelligence (AI) infrastructure spending, once again increasing its 2026 capital expenditure (capex) budget when it reported its Q2 earnings. It is now looking to spend between $195 billion and $205 billion building out AI data centers, up from earlier projections of between $180 billion and $190 billion. On top of that, it plans to significantly increase capex next year.

That type of spending will help drive growth at various AI infrastructure companies, both this year and next. Let's look at eight AI infrastructure stocks that should directly benefit from this increased spending.

Broadcom

As the co-developer of Alphabet's tensor processing units (TPUs), which are designed for specific AI tasks, Broadcom (NASDAQ: AVGO) is poised to be one of the biggest beneficiaries of the company's increasing infrastructure spending. It manages the physical design and handles the supply chain for these custom AI ASICs (application-specific integrated circuits), and is the one that records the revenue when they are delivered. In addition, Broadcom also has a large networking business that will benefit from Alphabet's AI data-center spending.

Celestica

Celestica (NYSE: CLS) is Alphabet's main hardware integration partner. It makes custom printed circuit boards (PCBs) and builds the physical server enclosures for Alphabet's systems. It also connects the server trays into racks and provides network switches that help handle traffic between TPU pods. Celestica's top three hyperscaler customers make up more than 50% of its revenue, with Alphabet believed to be its largest customer (at about 28% of total revenue in Q1).

Lumentum

Unlike traditional data centers that convert light back into electrical signals to route data, Alphabet's TPU architecture uses direct optical circuit switches (OCS). By keeping the data entirely in the form of light, Alphabet reduces both power consumption and latency. Lumentum (NASDAQ: LITE) benefits from this as it is just one of only two global suppliers that can produce the high-speed 200G laser chips (EMLs) that generate these light signals at scale.

Nvidia

While much of Alphabet's spending will go toward custom TPUs, it also buys Nvidia's (NASDAQ: NVDA) graphics processing units (GPUs), as well. While TPUs are very good for things like pre-training and inference, GPUs are often better at things like research, custom kernels, sparse models, and many small models. This means Nvidia will still get a slice of this larger spending pie. It also likely ups the ante for other hyperscalers, which are likely to follow in Alphabet's footsteps and raise their own capex budgets in response.

Image source: Getty Images.

SK Hynix, Samsung, and Micron

With increased spending on TPUs and GPUs will also come the need for more high-bandwidth memory (HBM). HBM is a special form of DRAM (dynamic random access memory) that is packaged with these chips to optimize their performance. Samsung (OTC: SSNLF) is the primary HBM supplier for Alphabet, where it works directly with Broadcom. According to reports, it supplies more than 60% of Alphabet's HBM needs for its TPUs. The rest is largely provided by SK Hynix (NASDAQ: SKHY). The Korean company is also the main HBM supplier for Nvidia's GPUs.

Although Micron (NASDAQ: MU) isn't a big Alphabet HBM supplier, it likely provides the company with other solutions, like high-density enterprise solid storage devices (eSSDs) for Google Cloud storage and DDR5 server DRAM.

More HBM demand will also help keep overall DRAM prices high, which has been fueling revenue and gross margin gains at the big three DRAM makers.

Taiwan Semiconductor Manufacturing

Any increase in spending on advanced logic chips generally benefits Taiwan Semiconductor Manufacturing (NYSE: TSM). The company has a near monopoly on advanced logic chip manufacturing, and while Alphabet has reportedly placed a 3 million TPU order with rival Intel, the Taiwanese foundry is still making the vast majority of TPUs. It also provides the chip-on-wafer-on-substrate (CoWoS) advanced packaging that bonds HBM to the TPU die.

Geoffrey Seiler has positions in Alphabet and Broadcom. The Motley Fool has positions in and recommends Alphabet, Broadcom, Celestica, Intel, Lumentum, Micron Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.