However, we remain positive on the outlook for the technology sector and artificial intelligence (AI). Against this backdrop, we believe there is a need to leverage volatility to build long-term AI exposure.
Leading AI customers are making strong spending commitments into 2025. Both Alphabet and Meta highlighted the risk of underspending, rather than overspending, on AI during the second quarter reporting season, and our analysis shows that large tech companies’ total capex intensity (capex investment divided by sales) is high. ) remains below its historical peak. Additional support from a wide range of customers, including other cloud platforms, enterprises, and sovereign entities, also supports our positive outlook for AI Semiconductor. We expect the overall AI semiconductor industry revenue to grow from $58 billion in 2023 to $168 billion by the end of this year and $245 billion by the end of 2025.
The upcoming third quarter results should provide some stimulus to the market. As earnings season begins this week, investors’ attention will quickly shift to technology fundamentals. Despite mixed results in the second quarter, we expect tech and AI companies to “win and rise” in the September quarter. Early today, Taiwan Semiconductor Manufacturing Company (TSMC) posted a better-than-expected 40% year-on-year increase in September sales, with full quarterly results expected to be released next week. Overall, we expect AI stock pick earnings growth to be approximately 35% in 2024 and an additional 25% in 2025.
An accelerating technology upgrade cycle is underway. Initial computing demands for generative AI were primarily driven by graphics processing units (GPUs) based on 5-nanometer and 4-nanometer-sized transistors (semi-devices used to amplify or switch electrical signals and power). or have been driven by custom chips. But major chipmakers’ product development roadmaps show that over the next five years, computing power is poised to increase exponentially, leading to shrinking transistor sizes. As the size decreases, the number of transistors in the chip increases, allowing it to perform more processing in the same amount of time. This should significantly improve performance and increase investment in AI chips. Some beneficiaries are also expected in the semi-cap equipment and data center supply chain segments.
As such, we continue to support the semiconductor sector and mega-caps for AI exposure and encourage investors to consider structured strategies or buy-on-the-spot approaches to high-quality AI stocks. For investors willing and able to manage risks such as illiquidity, we see broad AI opportunities in the private market, with a focus on large-scale language models, software applications, and data centers.
Main contributors – Solita Marcelli, Mark Haefele, Sundeep Gantori, Daisy Tseng, Jon Gordon, Christopher Swann
Original report – Technological fluctuations offer opportunities for long-term AI exposure, October 9, 2024.
