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Investing.com – According to Morgan Stanley (NYSE:), Nvidia (NASDAQ:), a dominant player in the artificial intelligence market, may face increased competition from custom chip designers in the near future.
Growing interest in AI-based technologies, sparked by the release of ChatGPT late last year, has led to a spike in semiconductor demand for graphics processing units (GPUs). These chips, made almost exclusively by Nvidia today, are expensive to buy and consume a lot of power.
Nvidia’s new H100 GPUs, for example, priced at $30,000 each, consume almost twice as much power as a chip made by Intel (NASDAQ:) or AMD.
“We believe that budget costs and power requirements are the two main limitations of tomorrow’s AI computing,” Morgan Stanley analysts led by Charlie Chan said in a June 11 note to clients.
“We therefore expect custom chip designs for AI to be increasingly power-efficient and low-cost, matching or even exceeding the growth of general-purpose GPUs from NVIDIA and AMD.
The investment bank estimates that the total size of the AI computing semiconductor market will be around $43 billion in 2023 and could nearly triple to $125 billion by 2027.
Additionally, the bank said there could be room for even greater growth if investments in AI significantly improve business productivity or if more consumer-oriented applications emerge.
The firm predicted that these custom chips will take up to 30% of the cloud-based AI semiconductor market share by 2027, as increased demand justifies the upfront cost of custom designs.
5 global chip stocks to invest in AI according to Morgan Stanley
Taiwan Semiconductor Manufacturing Co Ltd (BVMF:), which currently holds a 60% market share in the manufacture of advanced AI chips, is expected to play a vital role in the future growth of this sector. According to Morgan Stanley analysts, TSMC could derive up to 13% of its revenue from manufacturing these new chips by 2027, as its capacity expands.
Alchip Technologies Ltd (TW:), saw its price target raised to T$1,800 from T$1,480. “We are raising our interim growth rate assumption to 14% (from 13%) to reflect the acceleration in demand for AI ASICs. As one of the few leading design services companies, we believe that “Alchip (with GUC) is a key enabler of future custom AI chip designs, and therefore a higher interim growth rate is warranted.”
Global Unichip Body (TW:), chip designer, has secured a contract from Microsoft (NASDAQ:) to work on its new 5nm custom AI chip, which could be deployed in the American company’s cloud computing products . “According to our audits of the foundry’s supply chain, Chinese customers in the networking sector have become more aggressive on orders, creating upside potential for 2023 earnings.”
King Electronics Co Ltd (TW:), saw its price target raised to $60.00 from $49.00. “We are raising our interim and final growth rates to 4.5% and 3.0% (from 4.0% and 2.5%) for KYEC, given its strategic position to capture growing demand for testing of IA as NVIDIA’s primary final testing provider.”
ASM Pacific Technology Ltd (HK:), saw its price target raised to HK$88 from HK$66.00. ASM Pacific manufactures chips that connect GPUs to a server’s memory using specialized “packaging” and “bonding” technologies. “In our Greater China coverage, we identify ASM Pacific as a key metric for advanced packaging equipment manufacturers. We estimate that 5-10% of ASM Pacific’s revenue in 2023 will come from [technologie de collage TCB]and that the associated contribution will grow with the growing demand for chiplet technologies, driven by the proliferation of the AI semiconductor market.”
Investing Pro models see mixed performance potential compared to Morgan Stanley advice.
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