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.
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.
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.
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