AI Is Great, But Not All Companies Are Benefiting From It In This Earning Season

So far, the financial reports released have revealed a truth: not all chip companies can benefit from the AI boom, highlighting the complexity of the semiconductor supply chain and the dominance of some companies over others in different areas of the industry.

Currently, many semiconductor companies have announced their financial results for the second fiscal quarter. Some companies have exceeded expectations, while others have been disappointing, showing how the rise of AI has affected their profitability.

The current interest in AI revolves around two key terms - Large Language Models (LLMs) and Generative AI (AIGC). LLMs require a lot of computing resources and data for training, and they support generative AI applications such as chatbots by Google and OpenAI.

The tech giants training LLMs are still firmly burning money. Meta said on Wednesday that it expects a significant increase in capital expenditure by 2025 to support our AI research and product development efforts. Microsoft said this week that its capital expenditure in the second quarter of the fiscal year grew nearly 80% year-over-year, reaching $19 billion.

As tech giants continue to increase computing resources, these expenditures are a huge boost for Nvidia, whose graphics processing units (GPUs) are the preferred choice for training these LLMs.

NVIDIA's competitor AMD has already brought its AI chip MI300X to the market and is beginning to see returns. AMD said on Tuesday that it expects data center GPU revenue to exceed $4.5 billion by 2024, up from the company's forecast of $4 billion in April. The chip company reported second-quarter earnings and revenue that exceeded market expectations.

Chip production and semiconductor equipment companies also seem to benefit from the AI boom. TSMC, the world's largest semiconductor manufacturer, said last month that its net profit in the second quarter grew by more than 36% year-over-year; while South Korea's Samsung Electronics saw a staggering 1,458.2% year-over-year increase in operating profit for Q2.

Meanwhile, ASML, the Dutch company that produces photolithography machines needed for manufacturing the world's most advanced chips, said last month that its net bookings in Q2 grew by 24% year-over-year, highlighting the continued high demand from top semiconductor manufacturers like TSMC.

It is worth noting that not all semiconductor companies have been boosted by the increase in AI investment, as they are relatively less significant at the beginning of AI.

Qualcomm and Arm saw their stock prices fall on Wednesday after releasing disappointing performance guidance. Although both companies have been emphasizing the importance of their applications for AI, the reality is that their intersection with AI technology is still very limited.

In fact, many companies' chips are based on Arm's design blueprints, and most of the world's smartphones use semiconductors with Arm technology. However, although many electronic product manufacturers are talking about AI smartphones, this has not fundamentally brought higher growth to the chip design company.

Most of Arm's revenue still comes from consumer electronics, not the data center business that has helped AMD and Nvidia achieve high-speed growth performance. Some analysts say that Arm may benefit as more and more devices begin to adopt AI technology.

In addition, Qualcomm's chips are mainly used in smartphones like Samsung, and most of the company's revenue still comes from mobile phones. Similar to Arm, Qualcomm's chips are not used in the data centers needed for LLM training.

However, the company's chips will be used in Microsoft's upcoming AI personal computers. Therefore, AI is a long-term game for Qualcomm.