Goldman Sachs is drawing investor attention to a group of underappreciated beneficiaries of the artificial intelligence (AI) investment cycle.
According to the brokerage, Nvidia, Broadcom, Cadence Design Systems, and Synopsis are still undervalued despite the rally some of the stocks have had.
In a recent note, analyst James Schneider outlined his bullish stance on companies playing pivotal roles in AI infrastructure, particularly in merchant and custom silicon, as well as electronic design automation (EDA) software.
Schneider noted that more than $350 billion in capital expenditure has already been poured into AI infrastructure, primarily by hyperscalers.
Despite limited monetization so far, he pointed to early signs of incremental revenue and cost savings that are beginning to justify these investments.
According to him, the AI investment cycle is transitioning from infrastructure buildout to a stage where clearer economic returns are starting to materialize.
Goldman Sachs sees this transition as creating a long-term opportunity, forecasting a sharp rise in the AI inference market over the next five years.
Inference, which is the process of using trained models to generate predictions or decisions, is expected to be a key area of growth, especially among cloud hyperscalers and emerging enterprise adopters.
Semiconductor leaders in the AI race
Among the top picks in the AI space are Nvidia and Broadcom, both of which have received buy ratings from Goldman Sachs.
Schneider maintains a $185 price target for Nvidia and $315 for Broadcom, implying potential upsides of over 13% for each stock.
Nvidia stock, which is up roughly 20% this year, remains the biggest beneficiary of the AI infrastructure boom, according to Schneider.
The company’s rapid product releases, leadership in performance, and a broadening customer base position it well to continue outperforming.
Goldman also sees Nvidia’s valuation as compelling, with room for further appreciation in the medium term.
Broadcom, another key player, is expected to capture significant market share in custom silicon, especially among hyperscalers.
Schneider highlighted the company’s strong and growing profitability in infrastructure software and noted that AI-related revenues could make up over 40% of Broadcom’s total revenue by 2026.
He believes the company’s premium valuation is justified by its exclusive supply relationships and the essential nature of its software offerings.
Schneider described a “barbell” approach to AI-related semiconductor investments, favoring both high-performance ecosystem leaders like Nvidia and Broadcom, and lower-cost custom silicon providers that enable more affordable AI solutions.
Recently, JPMorgan also maintained an “overweight” call on Broadcom with a target of $325, a 20% upside.
EDA software vendors positioned for long-term gains
Beyond semiconductors, Goldman Sachs is also bullish on companies that supply the tools for chip design.
Cadence Design Systems and Synopsys both earned buy ratings for their strong positioning in the EDA software market.
Cadence, up 7% year to date, is seen as a high-quality compounder with multiple long-term growth drivers.
Goldman’s $380 price target represents a potential upside of nearly 18%.
Synopsys, with shares up over 13% this year, is also seen as benefiting from increasing demand for custom chip design across various sectors.
Goldman’s $620 target implies an upside of 12.5%.
While Schneider acknowledged potential regulatory risks for Synopsys related to China export restrictions, he remains confident in its long-term growth potential, driven by a growing base of customers with significant needs for semiconductor IP.
Goldman Sachs’ view reflects a broader belief that AI is entering a new phase of investment rationalization, where select players with the right mix of technology, customer reach, and scalability are set to benefit most.
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