Zhitong
2023.11.27 03:46
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"AI gold rush" will continue next year! In addition to the tech giants, there are also opportunities for these "shovel sellers"

Since the launch of ChatGPT almost a year ago today, the market has been fascinated by generative artificial intelligence. While most investors have focused their attention on companies like super-sized tech giants, investment firm Redburn Atlantic suggests that the "gold rush" of AI can present opportunities elsewhere. Redburn Atlantic analyst Timm Schulze-Melander suggests that semiconductor companies should allow investors to capitalize on the AI wave.

Since the launch of ChatGPT almost a year ago today, the market has been fascinated by generative artificial intelligence. While most of the attention from investors has been focused on companies like the super tech giants, investment firm Redburn Atlantic suggests that the "gold rush" of AI can provide opportunities elsewhere.

Redburn Atlantic analyst Timm Schulze-Melander suggests that semiconductor companies can offer investors a "good diversification" of risk-return exposure in the AI wave, with companies like Applied Materials (AMAT.US), ASM International (ASMIY.US), and Lam Research (LRCX.US) potentially benefiting the most.

Schulze-Melander states that the adoption of vertical scaling, along with the use of gate-all-around (GAA) and back-end power chip architectures, should help these three companies achieve "excellent profit growth over the next 3-5 years." In an investor report, he writes, "These factors will encourage investors to navigate through the challenging year of 2024 and begin pricing in the more attractive profit prospects for 2025 and beyond."

Schulze-Melander also turns his attention to KLA Corporation (KLAC.US), stating that the semiconductor industry is "well-known for its cyclicality" and may emerge from its cyclical downturn in 2024. He lists several reasons, including the rebound in the personal computer and smartphone markets. He notes that the fluctuations in DRAM and NAND chip prices help confirm the rebound in personal computers and smartphones.

However, recent data, such as the end of the two-year decline in smartphone sales, indicates that this improvement is still in its "early stages." Schulze-Melander predicts that smartphone sales will decline by 5.2% this year and increase by 4.3% next year.

Looking further into artificial intelligence, Schulze-Melander suggests that in order to achieve "sustained recovery," areas such as data centers and personal computers need AI technology to transition from large language models to revenue-generating applications. Schulze-Melander explains that Microsoft (MSFT.US) and its recently launched Copilot tool for enterprises may be an "important early use case" for investors.

Schulze-Melander states that memory chip manufacturers can provide a "cyclically attractive investment opportunity" in the early stages of the cycle, as memory has already corrected from production and spending downturns for five quarters, and the increased demand for personal computers, data centers, and smartphones should help "restore balance in the second half of 2024."

The surge in demand for AI accelerators clearly benefits NVIDIA (NVDA.US), according to Schulze-Melander, who suggests that this demand may remain "strong." However, the expected year-on-year growth of 50% indicates that most of the demand has already been anticipated, which may present opportunities for investors in other targets.Schulze-Melander also pointed out that companies like Intel and AMD have the ability to provide inference hardware configurations and bring positive surprises to CPU demand, while companies adopting Arm architecture in the customer chip and application field are expected to see "very strong" growth in the next two years.

Schulze-Melander explained that in the semiconductor capital equipment field, the aforementioned three applied materials companies, ASM International, and Lam Research should benefit from their GAA business, as well as the power transmission network and chip hybrid bonding behind it.

However, not all companies have good investment opportunities, Schulze-Melander said. Dutch chip equipment manufacturer ASML may face some problems next year, including delays in its extreme ultraviolet lithography tools. Management changes may also be an issue as the CEO Peter Wennick and CTO Martin van den Brink's terms are set to expire in April 2024, which "may put pressure on valuation multiples," Schulze-Melander said.