Philippe Lafont is one of the best portfolio managers at identifying and capitalizing on major technology trends. His fund company, Quattro Management, invests billions in public and private markets. These funds include $39 billion in publicly traded US stocks as of this writing, and 20% of that is held in just three stocks that offer a smart way to play the continued growth in artificial intelligence (AI).
While chip makers like it Nvidia and Broadcom Often attracting the attention of investors, LaFontaine has moved up the supply chain in companies that provide the tools and services needed for its chipmakers. These three stocks benefit from the rising costs of AI computing, no matter who designs the chips that end up in data centers.
Will AI create the world’s first trillionaire? Our team just published a report on a little-known company, called “Essential Dependency” that provides critical technology to both Nvidia and Intel. Continue »
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Taiwan Semiconductor Manufacturing(NYSE: TSM )Known as TSMC, it is widely regarded as the world’s largest contract chip maker. Its market share rose to 72% of total foundry spending in the third quarter, driven by its advanced chip capabilities. The high-end GPUs and XPUs designed by Nvidia and Broadcom all use TSMC’s technology and manufacturing services.
With demand peaking in 2026, TSMC is poised for another strong year of growth. Management forecast 38% revenue growth in the first quarter and 30% for the full year. This is supported by price increases for its most advanced manufacturing processes, as it works to build production capacity as soon as possible. The price hike, combined with its 3-nanometer process scaling, should drive strong gross margin expansion, partially offset by depreciation charges from its ongoing capital expenditures.
For this, the company is looking to capitalize on the huge opportunity in front of it. Management plans to invest between $52 billion and $56 billion to build new manufacturing facilities. This is a 32% year-over-year increase at the midpoint.
Longer term, management expects annual revenue growth of around 25% between 2025 and 2029. Despite a very strong start to the period in 2025, there is still growth left for the business over the next four years. Management’s outlook indicates average revenue growth of 20% from 2027 to 2029, followed by 30% growth in 2026. It should come with expanding margins as it exercises pricing power and scales new processes.
With the stock trading at 27 times forward earnings, the shares are still undervalued at today’s price, given that investors can expect earnings growth in the 20% range by the end of the decade.
Lam research(NASDAQ: LRCX ) Provides wafer fabrication equipment for semiconductor manufacturers. Its equipment is particularly strong for logic and memory chips, including both NAND and DRAM, both of which have seen a surge in demand over the past year.
Lam is poised to benefit from a big increase in capital spending by chipmakers. This includes TSMC, as mentioned above, as well as memory chip makers such as Micron Technology and SK Hynix for DRAM. Micron plans to spend $20 billion on capital expenditures this year, up more than 25% year over year. SK Hynix will spend the same amount, raising its costs by 30%. Lam’s management expects sales of its wafer fabrication equipment to rise 23% through 2026, driven by more than 40% growth in its advanced packaging business for chips such as high-bandwidth memory.
The semiconductor industry can be cyclical, especially the memory chip market, where Lam is heavily weighted. That said, its services segment provides a stable and growing revenue base, which brought in $2 billion last quarter, up from $1.75 billion last year.
The stock ended trading at a forward P/E ratio of 32 in 2025, which is reasonably priced given the expected increase in memory chip costs over the next few years. However, investors have bid up the stock amid the memory chip downturn, and shares now trade for 46 times forward earnings. The stock looks expensive right now, and it wouldn’t be surprising to see Laffont take some money off the table in early 2026 after a drop in share price.
Applied materials(NASDAQ: AMAT ) It also manufactures wafer fabrication equipment, maintaining strong positions in a wide range of products for etching, deposition, and process control. Its broad portfolio means it competes with Lam Research, with practically everyone else in the industry, for placement in foundries.
The advantage of applied material is its scale. As a major wafer fabrication equipment provider, it generates more revenue than anyone else. This allows it to invest more in research and development and bring more advanced products to market against its competitors. This can help grow its market share, feeding a virtuous cycle. For reference, it spent $3.6 billion on research and development last year compared to $2.3 billion for Lam Research.
Management indicated Lam Research’s 20% equipment revenue growth outlook for 2026 when it released earnings results in mid-February. With TSMC’s long-term outlook improving, investors can expect similar results in 2027. Applied remains susceptible to cyclical forces in the semiconductor industry, he said.
The stock has risen significantly in recent months, but it still looks like a good value, especially when compared to Lam’s research. Shares currently trade for 34 times expected future earnings. Looking ahead to 2027, it drops to 27 at most. This is a fair price for the stock, considering the growth it should exhibit over the next few years.
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Adam Levy holds positions in Applied Materials and Taiwan Semiconductor Manufacturing. The Motley Fool owns and recommends positions in Applied Materials, Lam Research, Micron Technologies, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. Motley Fool has a disclosure policy.
Billionaire Philippe Lafont has 20% of his hedge fund’s 39 billion portfolio invested in 3 smart AI stocks Originally Posted by The Motley Fool
