Just a few years ago the chip industry was structured around a handful of players who moved in lockstep with each other. High demand for new products, especially AI data centers, has dramatically altered the industry’s market and patent values.
Dependent on research, development, patents and licensing, semiconductors were for decades dominated by Intel and a handful of other players, including Qualcomm. But increasing demand for powerful chips that power AI, as well new demand for semiconductors in vehicles, both EV and combustion and for homes, smartphones and other devices, have reshaped the landscape.
Demand for AI chips has been exacerbated because Nvidia, reports the New York TImes, “a longtime provider of the chips, has a virtual lock on the market. Inundated with demand, the Silicon Valley company, which has surged to a $1 trillion valuation.”
Four Areas
Semiconductor companies compete in four main areas: microprocessors, memory chips, commodity integrated circuits, and complex “systems on a chip.” Qualcomm manufactures semiconductors for a very wide range of devices, from vehicles to watches, laptops to smartphones, 5G and WiFi.
Graphics processing units, or GPUs, are the most in-demand chips because they are the fastest and most efficient way to run the calculations that allow cutting-edge AI companies to analyze enormous amounts of data. Nividia is the leader in providing these products and demand far outsrips supply.
Out of the Shadows
AMD, which for decades was barely a dot on Intel’s horizon, now has a 61% higher market cap, $202 billion vs. $125 billion. Innovative one-time growth leader Qualcomm ($44.2 billion in revenues, mostly patent licensing) is valued a shade higher at $129 billion.
Ironically, Intel is still the second largest semiconductor company in the in the world by sales at just under $70 billion vs. TSMC (Taiwan Semiconductor Manufacturing Company), which reports $71.6 billion. TSMC chips are in Apple products, from the MacBook Air to the iPhone.
Nividia, valued at over $1 trillion ($1.1 tillion), is somewhat unique. Originally specializing in power-hungry graphics processing units (GPUs), that are used in computer gaming, its powerful products have appear increasingly in smartphones, vehicles and A.I. data centers. Nividia’s sales? Just $28.5 billion – less than half of Intel’s.
Inquartik identified that Nividia filed 13,439 patent applications in 18 regions, mainly in the U.S., China, Germany, and Taiwan. Nearly half of the patents are active (48.8%), and 29.5% are pending applications. They also show that 58% of the active and pending patents are U.S. applications.
Other Players
Samsung Semiconductors comes in at just over $65 billion in revenue. It’s value is part of the parent company. Its semiconductors are often used in smartphones and tablets, especially in the company’s line of Samsung Galaxy devices.The market value premium is all about the trend toward A.I.
At number two valuation is San Jose, CA-based Broadcom at $335 billion. Texas Instruments, which as always been a quiet player, is now the fourth most valuable semiconductor company in the U.S. Broadcom’s revenue is are $33.2 billion.
In October 2022, the Biden administration introduced new export controls aimed at blocking China’s access to semiconductors produced with U.S. equipment. The controversial Biden administration Chips and Science Act may help to restore some of Intel’s luster.
The GPU chip shortage is dire, with the biggest, best capitalized companies in the best position to succeed in AI. It will take awhile for Nividia’s waitlist to clear.
There is even a groan-worthy YouTube song, set to Billy Joel’s “We Didn’t Start the Fire.” A performer called Weird A.I. Yankochip sings “GPUs are fire, we can never find ‘em but we wanna buy ‘em.” Listen here.
An illustration of how America’s 14 largest semiconductor companies stack up in market value vs. Nivida can be found here. Nividia’s YTD stock return as of late August is 222.49%. It’s ten year return: 13,323.85%.
Image source: VisualCapitalist
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