With the arrival of Christmas this week, 2024 is also nearing its end. Looking back at the past year, AI has remained an unwavering main theme in the US stock market, with AI hardware led by NVIDIA and AI software led by Applovin pushing the US stock market to new heights.
Although both are in the AI field, there are varied opinions in the market about which has greater growth potential in the future, hardware or software. With the upcoming 2025, how to choose between AI hardware and AI software has become a focal point of interest for investors.
AI Hardware
Recently, Bank of America pointed out in its "2025 Semiconductor Industry Outlook Report" that, although semiconductor industry sales are expected to grow by 15% to $725 billion in 2025, showing strong growth momentum, this growth rate will slow compared to this year's 20%. Specifically, Bank of America expects memory sales growth to drop from a year-on-year increase of 79% in 2024 to a growth of 20% in 2025, while core semiconductors excluding memory are expected to grow by 13%.
In fact, underlying concerns beneath the prosperity have begun to emerge, and apart from 2024, $NVIDIA (NVDA.US)$ 、 $Broadcom (AVGO.US)$ 、$Taiwan Semiconductor (TSM.US)$、 $Marvell Technology (MRVL.US)$ Companies that clearly benefit from the demand for AI computing power and have verified their ability to raise prices continue to soar, while other semiconductor hardware companies have started to stagnate.
SWHY warns of risks stating that the valuation of the semiconductor products and equipment industry in the USA has rapidly expanded, with a static PE reaching 60x. However, as the Capex growth for AI infrastructure companies is expected to slow down, the profit growth in 2025 may not accelerate compared to 2024, reducing the overall investment cost-performance ratio. Moreover, under the great power competition, the domestic substitution in China is lowering the demand for USA semiconductor stocks, while leading semiconductor companies in the USA face antitrust pressures in China, which may become the tail risk for USA semiconductor hardware.
Regarding the market trend for AI hardware in 2025, the Bank of America team proposed two views:
First, in the first half of the year, AI investments driven by American cloud customers and the deployment of NVIDIA's Blackwell will continue to support growth in the AI semiconductor sector;
However, in the second half of the year, as the Global economy recovers, inventory replenishment and the resumption of Auto production, investor interest may shift towards relatively less crowded Auto and Industrial chip manufacturers.
Although the overall industry growth rate may slow down, Bank of America still recommends six chip stocks worth Holding:
In the field of AI, $NVIDIA (NVDA.US)$ 、 $Broadcom (AVGO.US)$ and $Marvell Technology (MRVL.US)$ It is a leader. Analysts indicate that they remain Bullish on the development prospects of AI at least until the second half of 2025.
In the flash tool field, $Lam Research (LRCX.US)$ It is favored for its industry-leading position, as well as the potential to achieve a recovery in capital expenditures and problem-solving in the China market.
Meanwhile, the leaders in the Autos and electric vehicles sector $ON Semiconductor (ON.US)$ are receiving a lot of attention due to the expectation of a cyclical recovery in the second half of 2025. $Cadence Design Systems (CDNS.US)$ It has attracted attention due to its continuous double-digit growth, especially against the backdrop of a slowdown in the AI Hardware cycle.
AI Software
Compared to hardware, the AI Application Sector is more likely to experience a moment of flourishing in 2025. According to Menlovc data, overall AI spending by enterprises has increased from 2.3 billion dollars last year to 13.8 billion dollars this year. The foundational models still account for the largest portion of spending, but the growth rate of model deployment and application layers is faster.
Previously, Futu News compiled theThe Era of AI Applications Has Arrived! The stock AppLovin has risen over 850% this year, which stocks are expected to become the next potential stock?in an article.
These include:
AI + Data Analysis$Palantir (PLTR.US)$、$Cellebrite (CLBT.US)$、$Elastic (ESTC.US)$;
AI + Cloud Computing Service$ServiceNow (NOW.US)$、$CommVault Systems (CVLT.US)$、$Datadog (DDOG.US)$、$Cloudflare (NET.US)$、$Snowflake (SNOW.US)$、$MongoDB (MDB.US)$、$Confluent (CFLT.US)$、$Gitlab (GTLB.US)$、$Fastly (FSLY.US)$;
AI + Digital Advertising and Marketing$Applovin (APP.US)$、$The Trade Desk (TTD.US)$、$Digital Turbine (APPS.US)$、$Klaviyo (KVYO.US)$、$Zeta Global (ZETA.US)$、$Braze (BRZE.US)$、$Adobe (ADBE.US)$、$Twilio (TWLO.US)$、$Life360 (LIF.US)$;
AI + Enterprise Solutions$Doximity (DOCS.US)$、$Workday (WDAY.US)$、$Automatic Data Processing (ADP.US)$、$Zoom Communications (ZM.US)$、$SAP SE (SAP.US)$;
AI+ Project Management$monday.com (MNDY.US)$、$Atlassian (TEAM.US)$、$Smartsheet (SMAR.US)$、$Asana (ASAN.US)$;
AI + Sales and Marketing Platform $HubSpot (HUBS.US)$、$Salesforce (CRM.US)$;
AI + internet of things $Samsara (IOT.US)$AI + Online Education $Duolingo (DUOL.US)$。
SWHY believes that the application direction of AI will be a key focus for AI industry development in 2025, with software being more cost-effective than hardware. SWHY stated:
Since the second half of 2024, applications primarily focused on providing solutions for B2B and B2G have become more certain, with industries such as computers and media speeding up performance fulfillment. In the B2C sector, there is higher visibility in autonomous driving in the transportation sector and AI diagnosis and drug development in the healthcare sector. The integration of AI with other traditional industries (such as retail and finance) is worth looking forward to, and once there is a significant transformation in productivity, the related traditional industries may see a valuation reassessment.
Looking ahead to 2025, Industrial Securities stated that it is determined that AI's penetration rate in software service advertising, video, sales, customer service, and AI Agent will continue to drive the cloud services industry. Meanwhile, on the hardware side, smart phones and smart glasses will also benefit from the application of large models and scenario evolution, accelerating the entry of AI applications into the fast lane.
Industrial Securities recommends AI's vertical applications in segmented industries include:
AI agents comprehensively enhance the workflow efficiency of IT, Employee, Customer, and Creator. $ServiceNow (NOW.US)$ ;
The layout of generative AI in multiple fields such as CRM, collaboration, and data analysis. $Salesforce (CRM.US)$ ;
The adoption of AI products shows positive trends in leading data warehouse companies. $Snowflake (SNOW.US)$ ;
The AI application boom is coming! Make good use of the 'investment theme' feature by opening Futubull > US stocks > investment themes.AI application software stocks, capture investment opportunities.
Editor/lambor