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AI Market Expansion Boosts Semiconductor Ecosystem with Diverse Beneficiaries

BofA highlights booming AI market's impact, emphasizing TSMC's role and Nvidia's ecosystem benefits amidst global supply chain growth.

By Max Weldon

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3/26, 19:47 EDT
Advanced Micro Devices, Inc.
Intel Corporation
Marvell Technology, Inc.
Micron Technology, Inc.
NVIDIA Corporation
Taiwan Semiconductor Manufacturing Company Ltd.
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Key Takeaway

  • BofA highlights the booming AI market's impact on the global supply chain, emphasizing TSMC's critical role in chip production.
  • Nvidia's AI chip launch boosts its ecosystem, benefiting Micron Technology and Taiwan Semiconductor with increased demand for high bandwidth memory.
  • Despite Nvidia's spotlight, broader semiconductor ecosystem companies like Super Micro Computer see significant growth, caution advised over valuation concerns.

AI Market Expansion

The artificial intelligence (AI) market has seen a significant surge, with big U.S. tech companies like Nvidia, Microsoft, and Alphabet at the forefront of this growth. However, the ripple effects of this AI boom are benefiting a broader spectrum of firms across the global AI supply chain. Bank of America (BofA) highlighted in a March 15 note the "booming" AI market since the second half of 2023, emphasizing the critical role of TSMC in chip production and the global sourcing of chip and integrated circuit designs, primarily from Taiwan and some components from Greater China. BofA analysts pointed out, "The scarcity of AI/computing suppliers helps higher value-added and bargaining power, especially for costly AI products."

Supply Chain Beneficiaries

BofA identified several segments within the AI supply chain poised for growth, including server original design manufacturers (ODMs), hardware technology, and semiconductors. Among server ODMs, Quanta, Wistron, and Foxconn Industrial Internet were highlighted for their significant roles and partnerships with major tech companies like Google, Microsoft, and Nvidia. In the hardware tech space, Unimicron and NYPCB were recognized for their advancements in AI and high-performance computing, with Unimicron noted for its revenue growth from AI-server related projects. The semiconductor segment is seeing increased importance due to the complexity and cost of chip design, with Taiwanese firms Alchip and eMemory, along with MediaTek, identified as key players benefiting from the AI server trends.

Nvidia's Ecosystem Impact

Nvidia's recent AI chip launch has not only solidified its market leadership but also created a bullish outlook among Wall Street analysts, despite a temporary 2% pullback in shares. The launch is expected to benefit companies within Nvidia's ecosystem, such as Micron Technology and Taiwan Semiconductor, due to the higher bandwidth memory needs of the new chips. Marvell Technology and Super Micro Computer are also anticipated to gain from the data center AI growth and liquid cooling needs. However, competitors like AMD and Intel may face challenges keeping pace with Nvidia's innovation cycle.

Diverse Beneficiaries and Challenges

While Nvidia's advancements have spotlighted the company, the broader semiconductor ecosystem, including companies like Super Micro Computer, has experienced significant growth, with Super Micro's stock soaring 790% year over year. This growth reflects the expanding opportunities within the AI hardware optimization space. However, concerns over valuation and the need for clarity on future growth prospects have prompted caution among some investors and analysts.

Street Views

  • BofA Analysts (Bullish on AI supply chain companies):

    "The scarcity of AI/computing suppliers helps higher value-added and bargaining power, esp. for costly AI products."

  • BofA Analysts (Bullish on Quanta, Wistron, Foxconn Industrial Internet):

    "Quanta: The investment bank says it’s the top original design manufacturer and has a diversified client base... Wistron: A major graphics processing unit baseboard supplier... Foxconn Industrial Internet: It’s a key partner to Microsoft and Nvidia through its subsidiary Ingrasys."

  • BofA Analysts (Bullish on Unimicron, NYPCB):

    "Unimicron and NYPCB are ahead when it comes to tech and product development related to AI and high performance computing... Unimicron has been faster in ramping up AI-server related revenue..."

  • BofA Analysts (Bullish on Alchip, eMemory, MediaTek):

    "In our view, finding trustable IP and design service providers has become more crucial in the AI era... Taiwanese stocks Alchip and eMemory as key beneficiaries... strong upside for MediaTek as it expands its customized chips to hyperscalers."