Spending on chips for AI servers is expected to accelerate.
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Semiconductor companies are heading into earnings season with artificial intelligence at the top of the agenda. Investors will be watching Nvidia, the market’s AI chip favorite, but they should also be thinking about Monolithic Power Systems, Marvell Technology, and Broadcom, according to Oppenheimer’s Rick Schafer.
Overall supply and demand in the semiconductor industry are broadly balanced, while sales, excluding memory chips, are likely to turn positive on a monthly basis for the first time this year, according to Oppenheimer. But AI chips are set to be the standout when it comes to earnings.
Spending on server systems equipped with AI accelerators is up more than 30% this year so far from the prior year, while spending on unaccelerated servers is down 20%, Schafer wrote in a research note. That means investors should be favoring chip stocks with exposure to AI.
It isn’t surprising to find
Nvidia
(ticker: NVDA) on Oppenheimer’s list of top AI chip makers. The company’s graphics-processing units (GPUs) have become the workhorse of the AI sector. Schafer calls the company the “clear leader” due to its hardware and software platform.
Schafer has an Outperform rating on Nvidia stock, with a target of $650 for the price. Nvidia shares were up 1.3% in early trading at $463.87.
For investors looking for other options, Schafer also identified
Monolithic Power
(MPWR), whose power-management devices are used in Nvidia’s GPUs. That means Monolithic rises or falls, to some degree, in line with Nvidia.
But Monolithic also provides components for Nvidia’s rivals such as Advanced Micro Devices (AMD). The result is that Monolithic is even more of a picks-and-shovels play, or a company that sells tools needed to take advantage of a broad new opportunity, than the AI chip makers themselves.
Schafer has an Outperform rating and a $565 target price on Monolithic. The stock was up 0.9% at $494.50 in early trading on Wednesday.
Marvell
(MRVL) and
Broadcom
(AVGO) are two stocks that are often selected as a pair when it comes to companies benefiting from the demand for AI networking chips. Schafer backed both of them, saying networking is one of the building blocks that make generative AI possible.
Schafer rates both stocks at Outperform. He has price targets of $70 and $990 on Marvell and Broadcom, respectively.
Marvell traded up 0.5% at $55.31 on Wednesday. Broadcom gained 0.3% to $860.75.
Write to Adam Clark at [email protected]
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