NVIDIA itself is a chip designer, not a manufacturer. Someone else needs to etch those chips onto silicon wafers, and Taiwanese company Taiwan Semiconductor Manufacturing is currently the leading-edge semiconductor foundry. The company recorded US$69.3 billion in sales last year, controls almost 60% of the foundry market, and is the main supplier of processor chips for Apple and NVIDIA.
There’s More to AI than Chips
AI applications rely on advanced computer servers that can handle the massive computing power required for new AI-enabled applications. These complex servers require a multitude of high-performance components, in addition to the core processor and other semiconductors, like memory chips, and demand advanced assembly, cooling and power-supply solutions.
While chip-design companies like NVIDIA and applications giants like Microsoft dominate the market’s attention, other companies in the “middle” of the AI supply chain offer exposure to this rapidly growing market at more attractive valuations than the headline-grabbing US heavyweights. Many are based in emerging markets such as Korea and Taiwan. Using bottom-up research, investors can find technology hardware companies that are critical to the AI supply chain and have strong market positions and pricing power.
For example, King Yuan Electronics is a Taiwan-based company that provides testing and measurement services for the semiconductor back-end supply chain to companies like NVIDIA, which accounts for a growing portion of the company’s revenue. With such expensive processing chips, a robust testing process is critical to ensure that the final product works properly.
Unimicron, a Taiwanese technology company, is another critical player in the AI supply chain. The Taoyuan-based company makes Ajinomoto build-up film (ABF) substrate, a key component of the interconnection that joins advanced chips with circuit boards. Unimicron’s customers include NVIDIA and Apple and its materials go into central processing units and graphic units for computer servers and gaming consoles. Major semiconductor companies such as Intel and NVIDIA depend on ABF substrates to produce high-performance chips.
Capturing the Power of a Technology Revolution
Despite an impressive roster of technology companies, Asia appears to have been left behind in the global sector’s rerating over the last few years. While technology sector valuations in the US, Europe and Japan have risen substantially since 2019, in Asia ex-Japan, technology valuations have hardly budged (Display). We think investors could be potentially overlooking some attractive opportunities today.