The buzz was there for years: artificial intelligence is the next big thing, As usual when it comes to technology innovation, the opening salvos from private equity and others took quite a while to catch up with reality. That all changed last year with the introduction of OpenAI’s ChatGPT, and then the company offered expanded access to OpenAI’s DALL-E 2 AI image and art generator. With almost unlimited potential and possibilities for machine learning, smart applications and appliances, autonomous vehicles and robotic applications, the brave new world is here now. Numerous companies stand to benefit from the technological advances that AI will provide, and those that fail to do so in the coming years will surely regret it.
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One metric that jumped out in a big way for the semiconductor team at Jefferies is the increased demand from big data centers around the country. They noted this in a very bullish report on the sector and those benefiting:
US data center leasing volume (top 10 markets) in the second quarter of 2023 was 755MW, up +93% quarter-over-quarter and setting a new record. The most capacity was leased in Phoenix (251 MW) followed by Northern Virginia (216 MW). With capacity constrained there, we are seeing record leasing volumes across most other markets. Additionally, we view these leasing volumes as positive leading indicators for data center processor chip companies.
The analysts feel that four top semiconductor companies will be big winners as the data center sweepstakes continue to take off. They said this when discussing the big industry players:
We view the robust increase of US leasing volumes as supportive of the expected datacenter chip sale reacceleration in the second half of 2023 post four quarters of digestion ending in the first quarter. Additionally, we find it notable that US vacancy rates hit a historical low in the quarter of 2.8%, down 10 basis-points quarter-over-quarter and down 75-basis-points year-over-year. We view the primary driver of demand to be a new generation of AI workloads not just at Cloud companies, but for the first time in years, at Enterprises as well.
While all are Buy rated, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
24/7 Wall St.AMD
This top semiconductor stock is up almost 82% year to date but still has room to run. Advanced Micro Devices Inc. (NYSE: AMD) offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs. It offers embedded processors and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing units, field programmable gate arrays and adaptive SoC products.
AMD provides processors under the AMD Ryzen, AMD Ryzen PRO, Ryzen Threadripper, Ryzen Threadripper PRO, AMD Athlon, AMD Athlon PRO and AMD PRO A-Series brand names; graphics under the AMD Radeon graphics and AMD Embedded Radeon graphics, as well as professional graphics under the AMD Radeon Pro graphics brand name. In addition, the company offers data center graphics under the Radeon Instinct and Radeon PRO V-series brands, as well as servers under the AMD Instinct accelerators brand.
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Earlier this year, the company unveiled its new Instinct MI300 chip series, which it claims is designed for speeding up processing for generative AI, and that is the technology used by ChatGPT and other chatbots.
Jefferies has a $145 target price for Advanced Micro Devices stock. The consensus target is $121.14. Shares close almost 3% higher on Tuesday at $117.60.
Broadcom
This stock has rallied nicely this summer, and though it remains most suitable for investors who are more aggressive, Wall Street continues to like the dividend growth. Broadcom Inc. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.
Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, servers and storage, factory automation, power generation and alternative energy systems and displays.
Top analysts and many on Wall Street are quite positive on the company’s massive $10 billion share repurchase authorization through December of 2023, which represents about 4.2% of the company’s market cap.
Investors receive a 2.04% dividend. The $910 Jefferies price objective is likely to be raised, and Broadcom stock has a consensus target of $880.43. The stock closed on Tuesday at $920.00.
24/7 Wall St.Marvell
This chip maker is probably well under the AI radar but could be another big winner. Marvell Technology Inc. (NASDAQ: MRVL) provides data infrastructure semiconductor solutions, spanning the data center core to network edge.
The company develops and scales complex SoC architectures, integrating analog, mixed-signal and digital signal processing functionality. It offers a portfolio of Ethernet solutions, including controllers, network adapters, physical transceivers and switches; single or multiple core processors; custom application specific integrated circuits; and SoC solutions.
Marvell also provides electro-optical products, including pulse amplitude modulations, coherent digital signal processors, laser drivers, trans-impedance amplifiers, silicon photonics and data center interconnect solutions; fiber channel products comprising host bus adapters and controllers; single or multiple core processors; storage controllers for hard disk drives and solid-state-drives; and host system interfaces, including serial attached SCSI, serial advanced technology attachment, peripheral component interconnect express, non-volatile memory express (NVMe) and NVMe over fabrics.
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The company is modeling a stunning $400 million in AI sales this year and $800 million in 2024. Its Computing and AI applications have now grown to become the single largest revenue driver and opportunity for Marvell’s cloud-optimized silicon platform.
The Jefferies target price is $82, well above the consensus target of $69.80. On Tuesday, Marvell Technology stock closed at $65.93.
Nvidia
This top company is making the chips that supply the incredible computing power required to run complex AI applications. Nvidia Corp. (NASDAQ: NVDA) provides graphics and computing and networking solutions in the United States, Taiwan, China and elsewhere.
Its Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/Nvidia RTX GPUs for enterprise workstation graphics; vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building 3D designs and virtual worlds.
Its Compute & Networking segment provides data center platforms and systems for AI, HPC and accelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; cryptocurrency mining processors; Jetson for robotics and other embedded platforms; and Nvidia AI Enterprise and other software.
The company’s products are used in gaming, professional visualization, data center and automotive markets. It sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, independent software vendors, internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups and other ecosystem participants.
Nvidia stock has a $500 target price at Jefferies, about the same as the $499.98 consensus target. The shares closed at $465.07 on Tuesday.
Artificial intelligence is here to stay, and heated discussion about the pros and cons of the industry and the multitude of applications and solutions that can and will be provided will continue. Elon Musk founded OpenAI in 2015, left the board in 2018 and has cut ties with the company. He has had some harsh words about some of the “woke” issues arising from the technology and is working on his own AI to rival the company. That proves that we are still in the formative years, and big money will be made well into the future.
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