Not All Semiconductor Firms Are Benefitting from the AI Boom

The boom in artificial intelligence (AI) is not benefiting all semiconductor firms equally, as recent earnings reports highlight the complexities and dominance of certain companies in the chip supply chain.

Winners in the AI boom: Companies like Nvidia and AMD are reaping the rewards of tech giants’ increased spending on computing resources for training large language models (LLMs) and developing generative AI applications:

• Nvidia’s graphics processing units (GPUs) are widely used for training LLMs, leading to a significant boost in the company’s revenue.
• AMD’s new MI300X AI chip is gaining traction, with the company expecting data center GPU revenue to exceed $4.5 billion in 2024, up from its previous forecast of $4 billion.

Benefiting from the supply chain: Chip manufacturers and tool providers, such as TSMC, ASML, and Samsung, are also experiencing growth due to the increased demand for advanced semiconductors:

• TSMC, the world’s largest chipmaker, reported a 36% year-on-year increase in net profit for the second quarter, surpassing market expectations.
• ASML, which produces specialist tools for manufacturing advanced chips, saw a 24% year-on-year jump in net bookings in the second quarter, highlighting the demand from companies like TSMC.

Limited exposure to AI: However, not all semiconductor firms are benefiting from the AI boom, as their exposure to the technology remains limited at this stage:

• Qualcomm and Arm, despite discussing their importance to AI applications, have not seen significant growth due to their primary focus on consumer electronics and smartphones.
• While many electronic makers are talking about AI phones, this has not yet translated into fundamentally higher growth for chip designers like Arm.
• Qualcomm’s chips will be used in Microsoft’s upcoming AI PCs, but this represents a longer-term play for the company rather than an immediate boost in revenue.

Broader implications: The varying impact of the AI boom on semiconductor firms highlights the complexities of the chip supply chain and the dominance of certain companies in specific sectors. As AI continues to evolve and become more integrated into various devices, the landscape may shift, allowing companies like Arm and Qualcomm to benefit more significantly in the future. However, for now, the primary beneficiaries remain those directly involved in the training of LLMs and the development of generative AI applications in data centers.