Tech Thoughts Newsletter – 22 March 2024.

Market: The Fed’s openness to reducing rates sparked a rally in the latter part of the week, especially in tech. The Nvidia GTC presentation, plus the strong results from Micron, added further fuel to the upturn, especially in stocks with AI exposure.

Portfolio: We have not made any major portfolio changes this week. 

• Nvidia (owned) hosted its GTC 2024 this week and, as expected, released its new AI chip, Blackwell, and several new partnerships and solutions. In general, the event was very much in line with expectations. The Blackwell architecture with B100 and B200 will go into production during 2H24 and likely face capacity constraints during 2024. The chips are based on TSMC 5nm technology but are called four due to some improvements to the process. 

• The Blackwell solution is an improvement from Hopper on all levels, including data throughput, memory, and power consumption. The key message that Nvidia was sending, however, is that it has a powerful solution on the GPU side but is even stronger than its competitors if you use the total solution from Nvidia with Infiniband connections, links, and its software stack.

Our view: Blackwell is a very strong solution and will likely be a strong success. Nvidia’s total solution proposal will be in good position as it simplifies the setup for many organisations lacking resources to build their architecture around their data centres. So Nvidia is in a very solid position in 2024 and 2025. 

• Xiaomi (not owned), China’s largest mobile phone supplier, reported a quarter in line with expectations for 4Q. Smartphone sales were up 24% Y/Y, indicating market share gains and a recovery in China. India was, however, a slight disappointment for the company. It also suggested that 1Q will be good with a slight volume downturn, so it will be better than normal seasonality. The company’s next step is releasing its first EV car, that it has already started to produce. 

Our view: Its volume shipments and guidance support our view that the inventory correction is over and the market has become more stable. It will also be interesting to follow its EV development, given Apple’s issues in the space. 

• Infineon (owned): This week, there were many discussions about how the companies building GaN (Gallium Nitride) technology are positioning themselves around patents and threatening competitors with lawsuits. Everyone is convinced that the growth in semiconductor solutions built on GaN will be robust due to power-saving needs. The key player with the most patents is Infineon after buying Rectifier and GaN Systems. For example, in China, it seems like Innoscience has been the only company that obtained licenses to produce chips, but has had a difficult time scaling production in smaller sizes. 

Our view: Infineon has a very strong position in the market, which is growing fast but is still quite small. The development of GaN solutions is accelerating, and we will see very high growth in the coming years. 

• KLAC (owned) announced it is exiting the flat panel display business after Apple pulled the plug on its Micro LED display development. The unit stood for around 1% of sales, so the effect on the company will be pretty limited. The company did, however, in conjunction with the closure of the business, reiterate its guidance for the quarter on the top and bottom line, excluding a charge for closing down the business.

Our view: The closure of the FPD business does not really affect the company’s general business. The reiteration of the quarter’s guidance, however, is a good indication that everything is tracking along with expectations. 

• Samsung, Hynix, Micron (not owned). Hynix has been single-suppling HBM memory to Nvidia, while Micron has ramped up volume this quarter. The question mark has been Samsung – will it supply Nvidia and when? Jensen Huang gave a clear answer to the question during the Nvidia GTC presentation, stating that Samsung will be a supplier. So the only questions are when and how will market shares play out going forward. Micron started to supply HMB this quarter and stated during its result call that it is sold out for 2024 and 2025.

Our view: Hynix and Micron are sold out for this year and partly for 2025. Samsung will definitely build a position for itself. Questions remain around tight supplies in the market – which GPU vendors can get allocations outside Nvidia and compete with volumes during 2024 and 2025?

• Micron (not owned) reported a very strong 2Q; sales grew 23% Q/Q and 58% Y/Y and totalled $5.8bn. Gross margin and EPS also came in well above expectations. Inventory adjustments are helping the company on all levels but it is clear that demand is picking up strongly. The company is highlighting that demand is strong now and that the leading edge memory nodes are in tight supply, led by HBM (AI demand), which uses 3x of the die size of DRAM. The company also stated that it sold out on the leading edge for 2024 and most of the capacity for 2025. This will lead to record sales numbers in 2025. 

• The company held on to its capex plan for the year ending in mid-2024, indicating a ramp-up during the two coming quarters but also stating that it will raise capex to meet demand from that point. The company also highlighted that it is rolling out more production using EUV, which is positive for ASML. 

Our view: The demand for memory will lead to more spending on capacity, driving demand for hardware suppliers like Lam Research, ASML and Applied Materials, which we hold in our portfolio. The company also highlighted that more production is moving to EUV, which is good news for ASML. 

• Microsoft (owned) released yesterday its new Surface AI PC, the PRO 10 and Laptop 6. They are optimised for AI and Copilot with the new AI keyboard and will start shipping in April. 

For enquiries, please contact:
Inge Heydorn, Partner, at inge.heydorn@gpbullhound.com
Nejla-Selma Salkovic, Associate, at nejla-selma.salkovic@gpbullhound.com

About GP Bullhound
GP Bullhound is a leading technology advisory and investment firm, providing transaction advice and capital to the world’s best entrepreneurs and founders. Founded in 1999 in London and Menlo Park, the firm today has 13 offices spanning Europe, the US and Asia.