Nothing ‘artificial’ about AI – Encouraging earnings outlook driving the future. AI players drew investors’ attention during the FY23 results season, driven by revenue from high-performance computing, high-bandwidth memory, and advanced nodes/packaging. Within technology, AI-centric sectors are leading the charge, as evidenced by robust performance in data centres and networking.
These segments experienced the most positive revisions in guidance. Capital expenditure (capex) and revenue for the data centre segment are projected to substantially surpass that of other segments over the next three years. The robust growth in data centre revenue is not only evident among direct players, but also in companies with indirect data centre exposure, suggesting the vast potential/opportunity of this segment.
Data centre and memory chips are key beneficiaries of the AI wave. The data centre segment is projected to be the biggest beneficiary of the ongoing AI boom. Demand for cutting-edge, AI-enabling graphics processing unit (GPU) remains robust, supported by strong demand among cloud players and data centre providers.
Memory chips, a key component in data centers for the storing and accessing of data, are also expected to excel as they ride on the AI boom. The technology roadmap among key memory players is also heating up – with growing need for high-bandwidth memory chips as well as the progressive shift towards memory-intensive, AI-inference work.
AI to spearhead value chain progression; Stronger growth vs broader market expected. Apart from robust growth in the data centre segment, we are also seeing encouraging signs of nascent AI development in other end markets, such as PCs and smartphones.
The total addressable market (TAM) of AI chips is anticipated to register CAGR of 28% during 2023-2027, significantly higher than the semiconductor industry’s CAGR of 9.4%. With a much faster growth rate, AI will account for 18% of total semiconductor revenue by 2027, up from 10% in 2023.
Figure 1: AI as % of semiconductor industry revenue
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