Just about every big tech company in the world is in a race to build more computing capacity than anyone else in order to meet the demands for large language model training and AI inference. The four biggest spenders alone are set to invest over $320 billion in capital expenditures this year, most of which will go toward data centers.

A handful of companies have been big beneficiaries of all that spending, not least of which is Nvidia (NVDA -0.74%). The chipmaker has seen its data center revenue climb more than 10-fold in three years as big tech buys up its graphics processing units (GPUs) as fast as it can make them. That’s led to phenomenal earnings growth for the company and its investors.

Demand continues to fuel growth at Nvidia, with expectations for 50% revenue growth in the second quarter.But competition is starting to catch up with the market leader and another AI giant could grow its AI chip revenue faster than Nvidia over the next three years. What’s more, its stock trades at a much more attractive valuation, making it a great buy for investors looking to capitalize on the next round of growth in AI.

The competition is making progress

Nvidia faces competition from two main source: other GPU makers and custom chip designs.

When it comes to other sources for GPUs, Advanced Micro Devices (AMD -2.31%) is the only practical competitor for Nvidia. Nvidia has remained a top choice for hyperscalers, offering better performance even though the costs of its chips remain high. Nvidia’s proprietary software, CUDA, gives it another way to lock in customers. And Nvidia offers better scaling solutions as well.

But AMD showed off new chips last month that aim to put many of those advantages to bed. Its MI400 chips, coming in 2026, offer a “rack-scale” system that allows a full rack of AMD chips to function like a single compute engine. That can offer better price performance than Nvidia, providing a legitimate contender for large data centers. It’s already received commitments from OpenAI, Meta Platforms, and Microsoft, among others, for its newest series of chips.

The other source of competition is custom silicon designs from companies like Meta, Microsoft, Alphabet‘s Google, and Amazon (AMZN -0.07%). Those represent Nvidia’s biggest customers, but they’re all looking to fill their data centers with more of their custom-designed chips made in partnership with Broadcom (AVGO -0.37%) and Marvell Technology.

These application-specific integrated circuits (ASICs) aren’t as flexible as GPUs for generative AI purposes. However, all four of the above have seen excellent results with AI training and inference on their custom solutions. And they’re all trying to expand the use cases of those chips in future iterations. Importantly for Microsoft, Google, and Amazon, the cloud providers say their customers are able to generate better price performance with their own chip designs than Nvidia’s. And they each have an incentive to sell their customers on custom silicon, since it will lock those customers into their respective ecosystems.

But none of the above-mentioned companies are in as good a position as another important AI infrastructure provider. And it can capitalize on the growing spending, no matter which chips customers ultimately decide to build with.

The company set to more than triple AI revenue in three years

When Nvidia, AMD, Broadcom, or Marvell want to actually take their designs and get them printed on silicon wafers, they need to contract with a manufacturer. And they all choose the same manufacturer for their needs: Taiwan Semiconductor Manufacturing (TSM -2.38%), otherwise known as TSMC.

TSMC has become a dominant force in semiconductor fabrication due to two key advantages: its scale and its technology. Both serve to feed one another. TSMC’s leading technology means it wins the biggest contracts from the biggest chip designers. As a result, it builds out scale to meet that demand. It also takes that revenue and reinvests it into R&D to ensure it maintains its technology lead. As demand for more advanced chips increases, it’s the only company that has the scale that can meet that demand.

In a market with booming demand, like we’re seeing right now, TSMC can produce considerable returns on its capital spending. And while a down-cycle in demand will put a strain on its profits, management has historically done a good job at forecasting future demand, budgeting appropriately, and positioning for the next cycle.

Right now, though, TSMC could see its AI-related revenue more than triple from 2025 through 2027. Management said it’s on track to double its AI-related revenue from 2024 this year alone, bringing it to around $26 billion. To triple, it would only need to grow a bit over 20% per year for 2026 and 2027.

But management expects 40% average annual growth over the five-year period from 2025 through 2029, implying an average of 28% growth in the next four years after doubling this year. So, even if management is overestimating its long-term prospects, it’s still likely to at least triple AI-related revenue by 2027.

A key aspect of that growth will be the introduction of its 2nm and 1.6nm processes. TSMC is set to release both manufacturing nodes in quick succession, with the 2nm arriving later this year and the next generation arriving in late 2026. The company is reportedly charging $30,000 per wafer for 2nm chips compared to about $20,000 for 3nm chips. TSMC already has 2nm contracts lined up for AMD, Microsoft, Amazon, Google, and others.

While AI-related revenue remains a small portion of TSMC’s total revenue, it should climb to about 30% of total revenue by the end of the decade based on management’s long-term forecast. The company expects about 20% total revenue growth over the next five years, and it should be able to produce strong margins in that period as it ramps up 2nm and 1.6nm production. Overall, earnings growth should keep pace with revenue growth, bolstered by strong demand for AI chips.

Meanwhile, the stock trades for a forward PE ratio of less than 25 as of this writing. That makes it an incredible value compared to other AI stocks like Nvidia or AMD, which trade around 35 times earnings. With the strong position TSMC is in right now, it’s worth adding to your portfolio.

Duolingo (DUOL 1.09%) operates the world’s most popular digital language education platform, and the company continues to deliver stellar financial results. Duolingo is elevating the learning experience with artificial intelligence (AI), which is also unlocking new revenue streams that could fuel its next phase of growth.

Duolingo stock set a new record high in May, but it has since declined by 26%. It’s trading at a sky-high valuation, so investors might be wondering whether the company’s rapid growth warrants paying a premium. With that in mind, is the dip a buying opportunity, or should investors completely avoid the stock?

AI is creating new opportunities for Duolingo

Duolingo’s mobile-first, gamified approach to language education is attracting hordes of eager learners. During the first quarter of 2025 (ended March 31), the platform had 130.2 million monthly active users, which was a 33% jump from the year-ago period. However, the number of users paying a monthly subscription grew at an even faster pace, thanks partly to AI.

Duolingo makes money in two ways. It sells advertising slots to businesses and then shows those ads to its free users, and it also offers a monthly subscription option for users who want access to additional features to accelerate their learning experience. The number of users paying a subscription soared by 40% to a record 10.3 million during the first quarter.

Duolingo’s Max subscription plan continues to be a big driver of new paying users. It includes three AI-powered features: Roleplay, Explain My Answer, and Videocall. Roleplay uses an AI chatbot interface to help users practice their conversational skills, whereas Explain My Answer offers personalized feedback to users based on their mistakes in each lesson. Videocall, which is the newest addition to the Max plan, features a digital avatar named Lily, which helps users practice their speaking skills.

Duolingo Max was launched just two years ago in 2023, and it’s the company’s most expensive plan, yet it already accounts for 7% of the platform’s total subscriber base. It brings Duolingo a step closer to achieving its long-term goal of delivering a digital learning experience that rivals that of a human tutor.

Duolingo’s revenue and earnings are soaring

Duolingo delivered $230.7 million in revenue during the first quarter of 2025, which represented 38% growth from the year-ago period. It was above the high end of the company’s forecast ($223.5 million), which drove management to increase its full-year guidance for 2025. Duolingo is now expected to deliver as much as $996 million in revenue, compared to $978.5 million as of the last forecast. But there is another positive story unfolding at the bottom line.

Duolingo generated $35.1 million in GAAP (generally accepted accounting principles) net income during the first quarter, which was a 30% increase year over year. However, the company’s adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) soared by 43% to $62.8 million. This is management’s preferred measure of profitability because it excludes one-off and non-cash expenses, so it’s a better indicator of how much actual money the business is generating.

A combination of Duolingo’s rapid revenue growth and prudent expense management is driving the company’s surging profits, and this trend might be key to further upside in its stock from here.

Duolingo stock is trading at a sky-high valuation

Based on Duolingo’s trailing 12-month earnings per share (EPS), its stock is trading at a price-to-earnings (P/E) ratio of 193.1. That is an eye-popping valuation considering the S&P 500 is sitting at a P/E ratio of 24.1 as of this writing. In other words, Duolingo stock is a whopping eight times more expensive than the benchmark index.

The stock looks more attractive if we value it based on the company’s future potential earnings, though. If we look ahead to 2026, the stock is trading at a forward P/E ratio of 48.8 based on Wall Street’s consensus EPS estimate (provided by Yahoo! Finance) for that year. It’s still expensive, but slightly more reasonable.

Data by YCharts.

Even if we set Duolingo’s earnings aside and value its stock based on its revenue, it still looks quite expensive. It’s trading at a price-to-sales (P/S) ratio of 22.9, which is a 40% premium to its average of 16.3 dating back to when it went public in 2021.

Data by YCharts.

With all of that in mind, Duolingo stock probably isn’t a great buy for investors who are looking for positive returns in the next 12 months or so. However, the company will grow into its valuation over time if its revenue and earnings continue to increase at around the current pace, so the stock could be a solid buy for investors who are willing to hold onto it for the long term. A time horizon of five years (or more) will maximize the chances of earning a positive return.