Nvidia (NVDA -2.84%) and Lam Research (LRCX -1.06%) play important roles in the artificial intelligence (AI) supply chain. Both stocks outperformed the S&P 500 during the last five years, and both companies reset their soaring share prices with stock splits in 2024. Most Wall Street analysts expect that momentum to continue in 2025.

• Among the 67 analysts who follow Nvidia, the median target price is $175 per share. That implies 53% upside from the current share price of $114.
• Among the 32 analysts who follow Lam Research, the median target price is $95 per share. That implies 20% upside from the current share price of $79.

Here's what investors should know about these companies.

Nvidia: 53% upside implied by the median target price

Nvidia graphics processing units (GPUs) are the chips of choice in accelerating complex data center work, like training large language models (LLMs) and running artificial intelligence applications. The company accounts for 98% of data center GPU sales and 95% of AI accelerator sales, according to the International Data Corporation.

The company has an important competitive advantage in its full-stack product strategy that spans hardware and software. It complements its GPUs with central processing units (CPUs), interconnects, and networking equipment, such that it effectively builds entire data centers. This allows Nvidia to design systems with a superior total cost of ownership, according to CEO Jensen Huang.

Nvidia has further cemented its dominance in AI chips with CUDA, an ecosystem of software development tools comprising hundreds of code libraries and pretrained models that streamline the development of AI applications. CUDA addresses a broad range of use cases that range from video predictive analytics and computer vision to logistics optimization and conversational assistants.

The investment thesis for Nvidia centers on the idea that artificial intelligence and every permutation of the technology -- generative AI, self-driving cars, autonomous robots -- will drive increasingly steep demand for its accelerated computing systems. Grand View Research estimates spending across AI hardware, software, and services will increase at 36% annually through 2030.

Wall Street expects Nvidia's adjusted earnings to increase 50% over the next four quarters. That consensus estimate makes the current valuation of 44 times adjusted earnings look cheap.

Admittedly, DeepSeek has raised questions about whether Nvidia can maintain strong earnings growth, but several analysts see the issue as overblown. Investors should feel comfortable buying a small position in this stock-split AI stock today.

Lam Research: 20% upside implied by the median target price

Lam Research develops wafer fabrication equipment (WFE), which refers to the machinery and tools used to make semiconductors. Specifically, it's the second-largest supplier of deposition systems, which create layers of insulating and conducting materials on silicon wafers. It's also the leading supplier of etch systems, which selectively remove material added by deposition systems to create chip features.

The investment thesis for Lam centers on the likelihood that technologies like cloud computing and artificial intelligence will create demand for increasingly powerful semiconductors over time. Lam products are most heavily used in memory-chip production, but foundries like Taiwan Semiconductor also use its deposition and etch systems to manufacture logic chips, like CPUs.

Grand View Research estimates WFE spending will increase at 7% annually through 2030. However, Lam has consistently grown more quickly than the broader market, and management expects the trend to continue in 2025. Beyond that, product development aimed at supporting more sophisticated chip architectures should keep the company on the leading edge of the WFE industry.

Investors need to be aware of the associated geopolitical risk. The U.S. government has restricted the export of semiconductor manufacturing equipment to Chinese companies, a market from which Lam currently derives about one-third of its revenue. New export controls or tariffs may strain an already tense trade relationship between the U.S. and Chinese governments, hurting Lam in the process.

However, Wall Street currently expects Lam's adjusted earnings to increase at 13% over the next four quarters. That consensus estimate makes the current valuation of 24 times earnings look reasonable. Investors should feel comfortable buying a small position in this stock today.