Bank of America recently stated that although the artificial intelligence trading in the stock market has benefited chip manufacturers such as Nvidia and Broadcom greatly, there are still some "second tier winners" who are expected to further rise, and the market is about to usher in a second wave of AI fever.
Bank of America analyst Vivek Arya wrote in the latest report, "The rising tide may create a profitable niche market for next tier suppliers."
Arya observed that the accelerator market (capable of achieving complex internal tasks of generative artificial intelligence chatbots) should double in the next three years, reaching approximately $200 billion. He believes that the rapid growth of this market may bring fruitful opportunities to the second ranked supplier.
He pointed out that "first tier winners" like Nvidia have already had high valuations, so it is expected that the stock price will experience greater volatility. He said, "However, as they expand their market potential (TAM), the 'second tier winners' may continue to explore profitable niche markets."
Arya believes that three stocks rated "buy" will benefit from the increasing popularity of artificial intelligence.
1. Marvell Technology
Meiman Electronic Technology provides semiconductor solutions with a focus on data infrastructure and helps technology companies build custom chips. The company should provide more details about its artificial intelligence strategy at the upcoming analyst day on April 11th.
Arya believes that Analyst Day will become a positive catalyst for the stock, as he expects the company to gain about 10% of the long-term market share in the $20 billion to $30 billion customized artificial intelligence chip market, far exceeding the market's generally expected less than 5% share.
Arya said that Micron can also highlight its artificial intelligence Ethernet switching business, and by 2027, this market may double to reach $7 billion. Meiman Electronic Technology currently holds a 5% market share.
Bank of America has reiterated its target price of $95, indicating a potential upward potential of approximately 30% for the stock.
2. Micron Technology
High bandwidth memory (HBM) is crucial for the increasing popularity of artificial intelligence, as it is creating a dynamic that has never occurred before in the memory market. This is good news for Micron, and in fact, the company's excellent second quarter performance also stems from it.
HBM is a new type of CPU/GPU memory chip, which actually stacks many DDR chips together and packages them together with the GPU to achieve a high-capacity, high-order wide DDR combination array. HBM can meet the practical needs of high computing power and large storage in the era of large models. Therefore, HBM is gradually becoming a key force for storage industry giants to achieve performance reversal.
Arya wrote, "Typically, new memory demand cycles are met by supply response, which inevitably leads to inventory and price pressures. High bandwidth memory, which is crucial for artificial intelligence, may be the first memory technology to quickly enter supply, consuming three times more wafers than traditional DDR DRAM memory."
He estimates that by 2027, the compound annual growth rate of the high bandwidth memory market will reach 48%, exceeding $20 billion.
"As artificial intelligence expands to the edge through higher specification smartphones, personal computers, and other smart/connected devices, the memory industry will also benefit," he said.
In its second quarter financial report, Micron specifically mentioned that its new product HBM3E will supply Nvidia's AI chip H200 Tensor Core GPU. The company expects that HBM products will generate "hundreds of millions of dollars" in revenue throughout the 2024 fiscal year, and most of the production capacity of such chips has already been booked by 2025.
Bank of America has raised its target price for Micron Technology from $120 to $144, which means the stock may rise by about 16%.
3. AMD Semiconductor
AMD's consistent execution has given Arya confidence to maintain a 5% to 10% share in the artificial intelligence accelerator market led by Nvidia.
He wrote, "This is lower than some bulls' 20% market opportunity, but we believe AMD is facing three challenges - from leading NVIDIA (its existing Blackwell products of reasonable scale and price), from lower priced/more optimized custom chips, and multiple startups chasing niche markets."
Nevertheless, Arya said, "We hope it can leverage its chip architecture to move faster towards the 3nm node of artificial intelligence products."
Bank of America has reiterated its target price of $195, indicating a 6% upward potential for the stock.