AI Chip Supply Chain Investment Opportunities: GPU Concept Stocks Worth Watching

Supply Chain Companies Ride the Wind

Entering the second half of 2024, NVIDIA’s stock price has shown significant volatility. The company’s market capitalization peaked at $3.34 trillion in mid-June, briefly surpassing Apple and Microsoft to become the world’s largest by market cap. Subsequently, the stock experienced a correction, falling over 20% by the end of June, erasing nearly $800 billion in market value within half a month. However, after hitting bottom in early August, NVIDIA’s stock resumed its upward trend, rising 25% in October alone, and the stock price rebounded above $134.

Alongside the rising NVIDIA concept, the collective performance of its upstream and downstream supply chain companies has also improved. Global chip manufacturing leader TSMC (2330.TW) achieved record consolidated revenue in September, reaching NT$251.87 billion, a significant 39.6% year-over-year increase. Semiconductor packaging and testing company ASE Technology Holding (3711.TW) also posted its highest revenue in 11 months in the same month, reaching NT$55.579 billion. These companies have announced capacity expansion plans, further confirming market expectations for AI chip demand.

What Are GPU Concept Stocks?

NVIDIA is a fabless design company responsible for designing GPUs and related products, with actual manufacturing outsourced to third parties. Taiwanese companies possess deep technological expertise in electronics, so many upstream companies in NVIDIA’s supply chain can be found on the Taiwan stock market. These companies’ businesses are closely tied to NVIDIA, and are regarded by the market as GPU concept stocks or NVIDIA concept stocks.

Investing in these concept stocks has strategic significance. First, NVIDIA leads in artificial intelligence, deep learning, cloud computing, and autonomous driving, with its growth trajectory driving related concept stocks to appreciate in value. Second, as AI technology becomes widely applied, hardware manufacturers, software developers, and service providers in the supply chain can all benefit from NVIDIA’s innovations. However, investors should note that as the market expands, new entrants will bring competition, and not every company is irreplaceable to NVIDIA.

Major GPU Concept Stocks Overview

Taiwan Stock Market Representative Companies

Major US Participants

Core Company Outlook Analysis

TSMC: Leader in AI Computing Chip Foundry

TSMC is NVIDIA’s primary chip foundry. According to the latest disclosures, the revenue share from high-performance computing (HPC) has risen to 52%, surpassing the smartphone business (33%) to become the largest segment. As major tech companies continue investing in AI infrastructure, this business is expected to grow strongly.

From a valuation perspective, the P/E ratio for 2024 is about 28x, expected to decline to 22x in 2025, which is relatively reasonable. TSMC has exceeded market expectations for 20 consecutive quarters, demonstrating excellent operational efficiency. Technically, the stock is currently in a bullish pattern, with the 20-day moving average crossing above the 60-day moving average. In the short term, the market is focused on the upcoming earnings briefing, with general expectations of double-digit revenue growth in Q4, providing upward momentum for the stock. However, investors should watch whether the RSI approaches overbought levels above 70.

ASE Technology Holding: Beneficiary of Advanced Packaging and Testing

ASE is a major provider of packaging and testing for GPU and other products. In the first half of 2024, its gross margin increased to 16.1%, still below NVIDIA’s advanced packaging and testing gross margin (20%-30%), so the increasing NVIDIA orders will effectively boost profits. The company announced that its Kaohsiung K28 plant has completed groundbreaking, further expanding capacity.

In the short term, multiple moving averages are entangled, reflecting serious market divergence on the outlook. It is recommended that investors temporarily avoid this stock. Long-term, under the backdrop of semiconductor market recovery, the company’s potential growth opportunities warrant continued attention.

Quanta and GIGABYTE: Main Suppliers for Servers

Quanta (2382) is a core supplier of NVIDIA AI servers. The September operational report shows that AI server revenue now accounts for over 70%, with PC business share continuing to decline. The company supplies motherboards, racks, and assembly for NVIDIA’s HGX and PCIe servers. As demand for AI servers increases, Quanta’s performance is expected to steadily rise.

GIGABYTE (2376), through its subsidiary Giga, is a certified NVIDIA supplier. Server product revenue share jumped from 21% in 2023 to over 50% in Q1 2024, and exceeded 60% in Q2. Besides existing H100/H200 chip orders, next-generation products like B200A and GB200 are entering mass production, expected to further stimulate revenue next year.

Wistron: Rapid Expansion of Testing Capacity

Wistron provides testing services for GPU and other products, with advanced GPU testing capabilities and over 50% of FPGA chip testing capacity. Given that GPU, FPGA, and high-speed Ethernet are the three key components of AI computing, the company’s performance is expected to achieve explosive growth. Capital expenditure for 2024 has been increased to NT$13.828 billion (up from earlier in the year), further confirming confidence in long-term growth.

Wistron: GPU Substrate Supplier

Wistron is a main supplier of NVIDIA DGX and HGX servers, also responsible for providing NVIDIA GPU substrates. Since NVIDIA CEO Jensen Huang explicitly stated that the upcoming supercomputer will place orders with Wistron, the company’s performance is expected to further improve.

International Company Outlook Forecast

ARM: New Opportunities in PC GPUs

ARM was once the target of NVIDIA’s planned $40 billion acquisition. Although the deal did not go through, NVIDIA remains a significant shareholder, with a recent holding value of about $1.47 billion, accounting for over 60% of its investment portfolio. Rumors suggest NVIDIA is preparing to launch chips combining next-generation ARM cores with Blackwell GPU architecture to enter the Windows on ARM market. Additionally, ARM is rumored to be developing standalone PC GPUs in Israel.

If these plans materialize, ARM could see substantial revenue growth. ARM recently adjusted its sales strategy from charging based on chip value to charging based on the value of devices using its designs, showing signs of a SaaS-like transformation, which could lead to stable long-term revenue growth. In the short term, ARM’s YTD stock price has already risen over 100%, recently reaching a rebound high of $152. Whether it can break through effectively remains to be seen, and cautious investment is advised.

Investment Strategy and Risk Warning

Key Risks

It is worth noting that although many GPU concept stocks have experienced large gains, whether their future performance can support such high stock prices remains to be seen. As NVIDIA’s supply chain expands, more companies will join, bringing potential competition. Investors need to stay updated on industry changes and adjust strategies accordingly.

Long-term Perspective

From a long-term investment perspective, the industry transformation brought by artificial intelligence is still in its early stages. NVIDIA’s GPU product supply has not yet saturated the market, and models like Sora for text-to-video conversion will further boost demand for related hardware. Therefore, GPU concept stocks in Taiwan have solid fundamentals for growth.

Investors should continue to monitor industry trends and evaluate stocks based on fundamentals, technicals, and valuation to benefit from this wave of AI industry growth.

Data updated as of October 11, 2024