A Peek Into the Semiconductor Industry - Market Insights

The "Super 7" – Apple, Microsoft, Google, Amazon, Tesla, Meta, and Nvidia – have partly helped lift the tech-focused Nasdaq index up over 30% this year. All of them have outperformed the broader market, with the top performer Nvidia more than doubling its share price.

These tech giants are all part of the latest artificial intelligence (AI) revolution, largely driven by the rise of ChatGPT and other generative AI apps earlier this year. Apple's smart headset, Vision Pro, is an example of how this technology is being applied. Microsoft has invested in OpenAI, which is a prominent player in this wave of technological innovation. Nvidia makes chips that provide necessary processing power to train AI models, and its CEO Jensen Huang claims publicly that "the iPhone moment of artificial intelligence" has arrived.

More than a decade ago, the first generation of iPhone was released, marking the watershed moment for mobile Internet. Are we witnessing a similar turning point for AI? Recent stock rallies in AI-related sectors seem to suggest that some investors are buying into this idea.

A quick look at ChatGPT's industry chain on moomoo reveals a wide range of businesses are involved in this booming business, many of which are publicly traded companies. Among them are semiconductor companies that play a key role in providing the computing power needed to train large AI models and support their applications.

Overall Landscape

"Life is like a snowball, all you need is wet snow and a very long hill," says Warren Buffett. It's an apt metaphor for investing, where finding a growing, sustainable industry is key. So what about the market size and growth rate of the semiconductor industry?

The semiconductor industry has a substantial market. Our technological world relies heavily upon chips as they are critical to the production of everything from smartphones to cars.

According to a report by the Semiconductor Industry Association (SIA), the global semiconductor market was worth USD 574 billion in 2022 and has quadrupled over the past 21 years, growing at a compound annual growth rate (CAGR) of 7%.

McKinsey, a consultancy, estimates the industry's aggregate annual growth could average 7% a year up to 2030, resulting in a $1 trillion dollar industry by the end of the decade.

Industry chain

To narrow our focus within the vast and complex semiconductor industry, it is important to find a segment with higher growth potential and understand how each division works.

Chips can be categorized into eight types, including logic chips, such as the Central Processing Unit (CPU) and Graphics Processing Unit (GPU), memory chips for data storage in computers and phones, and analog chips , such as 5G chips commonly used in telecommunications. Among them, logic chips create the largest revenue stream, accounting for over 30% of the industry's total sales in 2022.

Within the category of logic chips, CPUs are adept at performing complex serial computations, whereas GPUs - originally developed for graphics processing - are well-suited for handling simple parallel computations. As AI continues to advance, there is an increasing demand for the kind of simple yet powerful computing capabilities that GPUs can provide, making them a vital component in the industry. According to Verified Market Research(VMR), GPUs may experience a growth rate exceeding 30% in the future.

A chip generally goes through three stages before its application: design, manufacturing, and packaging and testing. Most chipmakers specialize in part of the process except for Intel and Samsung which have integrated chip production.