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Investors are salivating in anticipation of Nvidia’s earnings today after close of trading, as analysts rush to boost their estimates.
The big question, of course, is whether Nvidia can live up to the hype around AI. But perhaps the biggest question for investors is what other companies are actually profiting from and monetizing the demand for AI.
The answer, for now, seems to be nothing — or at least nothing close to the scale that Nvidia is already taking advantage of. But there are companies, chip makers and those in the larger AI ecosystem, that are starting to see revenue come in as far as AI is concerned, with the promise (they say) of much more than that.
One of the lesser-known names making a bid for artificial intelligence is Synopsys (SNPS). Chipmakers use the company’s software to design and validate their products. Synopsys’ new CEO, Sassin Ghazi, told Yahoo Finance Live that AI currently accounts for about 10% of sales, and is only in its infancy.
According to Ghazi, two factors are shaping the demand for chips: the trend towards “everything smart” (fridge, car, watch), and artificial intelligence.
“With AI, in order to achieve this and make it a reality, you need more advanced chips in the cloud or in the data center as well as more complex chips at the edge. With these two factors, the demand for semiconductors is unprecedented,” Ghazi, who is of He is set to succeed founder Art de Geus as CEO on January 1st.
Synopsys reported last week that third-quarter revenue rose 19% to $1.49 billion, and expected fourth-quarter earnings that beat analyst estimates. Earlier in the week, it announced a new contract with Intel to develop intellectual property for the company’s new factories, which will increasingly include artificial intelligence.
“When you look at the engineers that are available to develop and design these chips, they are always in short supply,” Ghazi said. “This is where Synopsys plays a big role in automating and modernizing chip design. You can apply AI to chip design where you can reduce tasks from many engineers to fewer engineers in a much shorter time.”
All that said, most of the current demand for chips is still driven by the growth of the Internet of Things (IoT), smartphones, and other processes that don’t involve generative AI.
Like Synopsys, Applied Materials (AMAT) sees most of the demand for AI in its future. The largest maker of chipmaking equipment last week reported earnings, saying AI equipment now accounts for 5% of its total sales, compared with 20% for data centers and 10% to 15% for the Internet of Things. AMAT’s chief financial officer, Bryce Hill, said peers have discussed a 30% to 50% growth rate for AI demand. “So if you look at 5% as a relatively small amount, we think it’s growing rapidly and it’s going to be an important burden going forward,” he said on the call.
Of course, some investors want to monetize AI now and aren’t willing to wait. Matthew Bryson, who covers the semiconductor industry as senior vice president of equity research at Widbush, says Nvidia is the way to go.
“I think it’s easier to just buy Nvidia and forget about it,” he said. He said it is less important what Nvidia publishes in terms of exact numbers and more important is what it discusses about the demand for AI.
“There is a lot of demand right now,” Bryson said. “She’s not satisfied. It takes over 40 weeks to get it from Nvidia. Not enough supplies.”
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