KeyBanc's Asia findings suggest weak China demand; AI opportunity
jiefeng jiang
KeyBanc Capital Markets quarterly supply chain findings for Asia suggested that China demand continues to be consistently weak, but AI data center demand have been shining.
KeyBanc analysts noted that their quarterly supply chain findings are mixed but generally more negative. China demand continues to be seen as consistently weak with no signs of a recovery, which is limiting the inventory destocking process.
Regarding end markets, most consumer-facing segments, such as PCs and smartphones remain weak, while automotive remains strong and industrial is resilient.
However, AI data center demand consistently across the board has been highlighted as seeing outsized strength but seems to be eating away traditional datacenter spend, the firm added.
The analysts said the findings are most positive for AI-exposed semis, Nvidia (NASDAQ:NVDA) and Marvell Technology (MRVL); positive for ON Semiconductor (ON); moderately negative for Analog â Analog Devices (ADI), Lattice Semiconductor (LSCC), Microchip Technology (MCHP), NXP Semiconductors (NXPI), Texas Instruments (TXN).
In addition, the findings are mixed for Advanced Micro Devices (AMD), Intel (INTC), Monolithic Power Systems (MPWR), Broadcom (AVGO), Qorvo (QRVO), and Skyworks Solutions (SWKS); while being negative for Qualcomm (QCOM) and Micron Technology (MU).
Nvidia (NVDA) - The analysts raised their estimates and price target on Nvidia to $550. Fundamentally best positioned, the analysts are seeing rising demand trends in the entire supply chain for generative AI servers. The analysts added that robust demand is not only coming from cloud but also from enterprise and AI startups.
Delays linked with AMD's MI300 are likely to free up incremental capacity in H2 2023, while the analysts believe Nvidia has secured enough capacity (CoWoS) to quadruple its datacenter revenues in 2024.
Marvell Technology (MRVL): The firm as such raised its estimates and price target on MRVL to $80. ASIC design wins for AWS Inferentia Gen 3 processor and Google wins including a custom AI chip and ARM CPU server provided the analysts confidence that Marvell could see a significant benefit from increasing demand for AI, and cloud optimized silicon.
In addition, the analysts are seeing increased demand for Inphi's datacenter interconnects (DCI) due to higher AI demand, which gives them confidence that extra optical inventories at customers will be normalized sooner rather than later.
ON Semiconductor (ON): The analysts said feedback from their checks suggests healthy demand for automotive and solar within industrials. In addition, supply for high voltage power remains tight with lead times remaining extended. The firm was increasing its estimates and price target on ON Semiconductor to $110.
Intel (INTC): The analysts noted that while PC demand remains weak, challenges linked with AMD's Phoenix PC NB processor should steer continued share gains for Intel in client. In addition, Intel is seeing a modest uplift with Sapphire Rapids as it remains the main CPU processor of choice for AI servers; however, AI server unit attach rates remain low at 3-4% this year.
However, until Intel can come up with a competitive AI solution, rising demand for AI servers, would ultimately be dilutive for the company, according to the analysts.
AMD: While near-term challenges linked with delays of the company's MI300 AI server and stability issues with its PC NB Ryzen Phoenix (7040) could lead to in near-term risk to estimates, AI server wins at HP/El Capitan, Microsoft (MSFT), and Meta give the analysts high hope that AMD could see well over $2B in AI revenues in 2024. Thus the firm was raising its estimates and price target on AMD to $160.
Analog Devices, Microchip Technology, NXP Semiconductors: The analysts see moderately negative implications for the broader analog group due to limited signs of recovery, weak demand trends in China and high channel inventory levels.
However, distribution partners suggest that semiconductor companies, with the exception of Microchip Technology (MCHP), have started to ease on sell-in shipments into the channel, enabling inventory destocking process to go advance. The analysts still see favorable risk/reward for the group.
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