shih-wei
shih-wei
By Yan Taw (YT) Boon
As the "Magnificent 7" continues to capture the market's imagination, we ponder what could be in store for global chipmakers.
Big tech companies have been reporting red-hot earnings, and AI remains all the rage. Among the Magnificent 7, semiconductor Nvidia's (NVDA) fourth quarter revenue more than tripled, to $22.1 billion, smashing analysts' expectations.
Such torrid performance, paired with the ongoing rise in groundbreaking technology, bolsters our belief that we are entering a golden age for semiconductors, with the most exciting developments yet to unfold.
Here are three key trends that, in our view, investors should keep in mind:
Generative AI (OTCQB:AICOF) - which can autonomously create everything from book reports to video content (think Open AI's Sora) - has driven demand for an array of high-performance chips. Samsung's (OTCPK:SSNLF) latest handset, the Galaxy S24 Ultra, offers a glimpse at how demand for low-power, AI mobile and memory chips might grow. While GPUs have been the mainstay for training general-purpose AI models, we believe attractive opportunities could lurk among makers of super-efficient, custom ASIC chips specifically designed for diverse AI applications.
Chip shortages caused by the COVID-19 pandemic led to subsequent overproduction and bulging inventories. Yet after an 18-month correction phase, inventories now appear to be normalizing across the sector: In 2024, global semiconductor sales are estimated to hit $588 billion - up 13% from 2023 and 2.5% higher than the record level set in 2022.1 In particular, sales of memory chips for PCs - which fell 31% in 2023 - are expected to gain back nearly all of those losses this year and spur growth through 2025.2
Semiconductors have become a crucial strategic resource for countries. Amid heightened geopolitical tensions, governments in the U.S., Korea, and Japan are offering incentives to boost domestic semiconductor production, which could present a significant tailwind for industry leaders. For example, TSMC is establishing manufacturing plants in Japan, Germany and the U.S., helping to cement its global leadership position.
New chip fab construction also spells opportunity for equipment manufacturers: SEMI forecasts that global sales of semiconductor manufacturing equipment will hit a record $124 billion in 2025 - a 75% increase from 2020 - fueled by capacity expansion, new fab projects and rising demand for advanced processing technologies.3
Sources: (1) Deloitte, "2024 Global Semiconductor Industry Outlook", 2024; (2) Ibid; (3) SEMI, Dec 11, 2023 & April 12, 2022.
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