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The surge in demand for artificial intelligence does not make up for weakness in other chip-related areas.

Compilation: Poetry

Nvidia's huge profits and optimistic outlook have benefited investors, who have pushed its share price to its peak this year. But as the US company accounts for the largest share of the artificial intelligence spending boom, the prospects for other chipmakers are less optimistic.

On august 23, Nvidia's shares rose more than 6 per cent in a week after reporting a 101 per cent year-on-year increase in quarterly revenue. Its share price has more than tripled since the start of the year.

Other chip developers did not get such a boost after reporting their second-quarter results. Among US companies, shares of AMD and Intel have fallen 7.41 per cent and 4.08 per cent respectively in the past month. As of august 29, the Philadelphia semiconductor index (SOX) was down more than 8.4% from a month earlier.

01. Nvidia is at the top of the world. Companies around the world are competing to use ChatGPT, an artificial intelligence chat robot developed by OpenAI, to bring artificial intelligence craze. This has led to a surge in demand for artificial intelligence chips, especially those from Nvidia.

"I can't find any other winners because Nvidia is a big part of the AI spending boom," said Matt Bryson, senior vice-president of equity research at Wedbush Securities.

In the three months ended July 30, Nvidia's revenue more than doubled from the same period last year to $13.51 billion, setting a new high for the company in the second quarter.

The surge in sales was driven by its data center business, including H100 and A100 chips, two advanced artificial intelligence chips used to build and run artificial intelligence models and applications. The company expects revenue for the quarter to be even higher, at $16 billion. Other chipmakers have also mentioned strong demand for artificial intelligence in their latest earnings, but few have seen revenue growth so high.

AMD, another major player in artificial intelligence chips, reported that revenue fell 18 per cent year-on-year in the three months to July 1, while Intel fell 15 per cent over the same period.

Asian chipmakers have also not made much profit from artificial intelligence. Samsung's chip division reported a loss of 4.36 trillion won ($3.3 billion) in the April-June quarter, while SK Hynix's revenue fell 47 per cent from a year earlier. Both companies are major players in memory chips, and the industry is extremely sensitive to demand cycles.

02. More dollars are turning to Vivek Arya, managing director and semiconductor analyst at Bank of America. "Nvidia's full-stack approach to chips, software, systems, scale, supply and partners makes it difficult for competitors to catch up."

Nvidia not only designs chips, but also provides artificial intelligence software and cloud solutions, and has built a strong ecosystem of channel partners with most of the world's major cloud providers, such as Amazon Web Services, Google Cloud and China's Alibaba.

Arya added: "some competitors, such as Intel and AMD, may see sales of their x86 CPU-powered traditional computing being severely eroded." This kind of CPU is widely used in data center servers and is usually the most expensive chip in the device.

As technology companies spend more money on artificial intelligence-driven systems, the amount of money allocated to traditional data center CPU is likely to decrease, and some investors worry that Nvidia's artificial intelligence accelerators could replace AMD or Intel's server business.

"one of the reasons why commodity and memory chipmakers are struggling to prosper is simply because there are huge alternatives and super-large [spending] in artificial intelligence," Bryson said. "more dollars are turning to Nvidia."

In the recently ended quarter, Nvidia's data center revenue was almost twice as much as Intel and AMD data center chip sales combined.

TSMC is an exception. TSMC (TSMC) is a rare exception to Nvidia. TSMC is the world's largest contract chipmaker. Unlike Nvidia, AMD and Intel, it does not design its own chips, but produces customer designs. It is the leading manufacturer of Nvidia chips, especially its most advanced products.

Huang Renxun, founder and CEO of Nvidia, told reporters at the Taipei International computer Show in June that his company will continue to rely on TSMC to produce next-generation chips. TSMC shares rose when the US chipmaker said at its August earnings conference that it was "significantly expanding" its capacity to meet growing demand for artificial intelligence chips.

Morgan Stanley estimates that 6 per cent of TSMC's revenue will come from artificial intelligence-related semiconductors by 2023 and calls Nvidia's future guidance a "near-term share price catalyst" for the contract chipmaker.

"TSMC is one of the few companies, and even if Nvidia got most of the benefits, you would say that TSMC has a direct relationship with Nvidia," Bryson said. TSMC is also the "biggest bottleneck" in the supply of Nvidia chips, he added.

Having Nvidia as a customer can help TSMC offset other customers' reduced orders for traditional cpu and other chips. However, it may take a while for the company to take full advantage of the Nvidia effect.

"although we have recently observed an increase in demand related to artificial intelligence, this is not enough to offset the overall cyclical nature of our business," Wei Zhijia, chief executive of TSMC, said on an earnings call in July. this shows that the semiconductor market is still struggling to cope with weak demand for personal computers and smartphones.

This article comes from the official account of Wechat: new Research (ID:chuxinyanjiu), author: Poetry

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