After about six quarters of inventory removal, the global semiconductor industry inventory is now gradually approaching normal levels, but there are obvious differences in the operating position of the sub-sectors. Demand for AI continues to be strong, but local structural changes are obvious. Downstream demand for consumer electronics, servers, etc. has begun to enter a recovery channel, benefiting from active upstream production cuts. Memory chips have entered an upward price channel since 2023Q3, but the automotive/industrial market is still weak in the short term.
Looking ahead to 2024, we expect the global semiconductor industry to achieve double-digit growth and is likely to continue in 2025. At the same time, AI (data center, edge side) will also provide additional support, but the stock price has clearly taken off, the SOX index has reached a record high, sector valuations have returned to historic highs, and the investment cost ratio has become the main focus of the current market.
Considering the relatively determined upward performance cycle in the next two years, we judge that sector stock prices are expected to continue to rise in 2024, but the increase still depends on terminal demand. At the same time, it is recommended to adopt a “post-cycle” mindset to properly focus on analog chips, automotive semiconductors, etc. that are about to bottom out of the cycle.
The views of CITIC Securities are as follows:
Market overview and industry operating cycle.
1) SOX's stock price reached a record high, driving the PE sector to a high level. Since Q3 2023, along with the rise in AI boom, inventory removal in major semiconductor application areas (consumer electronics, servers, etc.), and expectations that the Federal Reserve will cut interest rates, have driven US stocks$PHLX Semiconductor Index (.SOX.US)$A record high. The rise in stock prices led to a valuation multiplier of about 23.5 times for SOX PE (Bloomberg agreed, next year), which is at a historically high level.
2) Industrial operating cycle: After early inventory digestion, inventories in consumer electronics, PCs, servers, etc. have returned to a healthy level, and the industry is expected to enter a state of recovery in 2024. The bank believes that the growth rate of smartphone, PC, and traditional server CPU shipments in 2024 will all be in the middle single digits, and that combined with the favorable contribution of storage, the global semiconductor market is expected to achieve double-digit growth in 2024. Furthermore, the bank determined that generative AI remains strong and is an important catalyst for US semiconductors in 2023-2024.
3) Market outlook: Currently, the focus of the market is mainly on two levels: (a) how long the current round of stock price increases since the end of October 2022 can continue and reach a high level; (b) judging from the dimensions of valuation and market expectations, which sub-sectors may currently have a better cost performance ratio.
data center.
1) The bank determined that the traditional computing market would resume growth, and AI demand remained strong but the pattern was scattered. (a) In the traditional computing sector, growth has begun to resume in 23Q4, and the bank expects the industry to maintain steady growth in 2024. The main reason is that after traditional servers experienced inventory removal in 2023, enterprise demand ushered in growth and superposition$Intel (INTC.US)$Eagle Stream and AMD$Advanced Micro Devices (AMD.US)$The launch of new server platforms such as Genoa and Bergamo will drive demand for traditional servers in the context of switching cycles. (b) In the field of AI acceleration, the bank determined that the industry will continue to grow rapidly in 2024 but the structure will change. The main reason is the rapid launch of AMD GPU and ASIC products, leading to the fragmentation of the industry dispute pattern.
2) Along with the sharp increase in data center processing capacity, the new network architecture has been upgraded. The shipment volume and share of high-speed switches in data centers has gradually increased, and the market size of driving network semiconductors (DSP chips, switch chips, etc.) continues to increase.
Consumer electronics.
1) The bank's judgment: Smartphones will recover weakly in 2024, and the return of Huawei phones will smooth out the increase in industry shipments to a certain extent. simultaneously$Qualcomm (QCOM.US)$As MediaTek continues to expand its products into the middle, low end and high-end fields, the competitive pattern of mobile SoC chips will further intensify.
2) Considering factors such as computing power constraints, application scenarios, and power consumption, the bank determined that AI PCs are expected to be launched in 2024, becoming the first application scenario for edge AI. At the same time, compounding the beneficial effects of Windows 10EOL, the bank expects the PC industry to achieve mid-single digit growth in 2024, and there are structural opportunities in the PC sector, such as complete machines, core processors, and DDR5.
3) Judging from the industrial operating cycle, the traditional Internet of Things is currently still at the bottom. It is recommended to focus on the AR industry chain investment opportunities brought about by the 2024 Apple Vision Pro shipment.
memory chip.
1) WSTS expects the global storage market to grow by more than 40% in 2024, mainly driven by rising prices and demand for high-end products. Judging from the inflection point of the recovery of the storage industry, the bank determined that 23Q4 would be the low utilization rate for this cycle. Furthermore, considering that the first quarter is a traditional low season, it is unlikely that manufacturers will experience a sharp increase in production, so the bank believes that the recovery in capacity utilization in 24Q1 will be moderate or remain at the same level, and only then will the utilization rate show obvious signs of recovery.
2) DRAM: Currently, demand for DRAM products is gradually picking up and inventory is decreasing, driving DRAM product prices to bottom up and rise. Considering the cautious expectations of manufacturers to increase production in 2024, the bank expects the overall supply and demand environment for the DRAM industry to remain tight in 2024. At the same time, considering AI's support for the DRAM industry, HBM and DDR5 sales are expected to increase rapidly in 2024.
3) Considering that the NAND market inventory is higher than the DRAM market, the bank expects the NAND market to return to normal levels 1-2 quarters later than the DRAM market.
Semiconductor equipment & wafer manufacturing.
1) Semiconductor equipment: SEMI estimates that the semiconductor equipment market will only grow by about 4% in 2024. In 2025, the global semiconductor equipment market will rebound to US$124 billion (+18% YoY) as production capacity expands, new fab projects are put into operation, and high demand for advanced technology and solutions at the front/back end. It is recommended to focus on equipment iteration requirements related to HBM in the storage field and brought about by GAA architecture innovations in the Foundry field.
2) Wafer manufacturing: (a) In the field of mature manufacturing processes, leading companies and Chinese manufacturers are stepping up construction progress. 2024 may put some pressure on the OEM rate and OEM price of mature processes. (b) In the field of advanced manufacturing processes, considering that upstream IC design manufacturers will subsequently increase research and development of new products. Product iteration drives demand for advanced manufacturing processes. At the same time, considering the competitive pattern of advanced processes, the bank believes that there is some support for the capacity utilization rate and OEM price of advanced processes in 2024.
power semiconductors.
1) Through tracking$Texas Instruments (TXN.US)$,$ON Semiconductor (ON.US)$,$STMicroelectronics (STM.US)$As manufacturers perceive the downstream market, the bank found that weak demand in the industrial sector has basically become an industry consensus and has been conveyed to the performance of mainstream manufacturers; demand for semiconductors in the automotive sector is mainly limited by inventory levels, but considering factors such as the optimism of most manufacturers about downstream automobile demand, automobile manufacturers taking the initiative to increase their own inventory after experiencing a shortage of chips, and the fragmented pattern of automobile manufacturers, the bank believes that automotive semiconductors are expected to achieve a soft landing at 24H2.
2) Judging from the outlook of silicon carbide companies, industrial chain companies mainly maintain their own substrate supply by building their own production capacity or signing long-term supply agreements. However, regardless of the type, the bank expects to still see tight supply and demand for substrates in 2024. The quality and stability of substrate supply will still be an important bottleneck for manufacturers to compete for market share. The bank expects the global silicon carbide industry to remain tight in supply and demand in 2024.
Risk factors: risk of global economic decline exceeding expectations; risk of difficulties in the cross-border flow of technology and talent due to global geopolitical conflicts; risk of developing AI core technology falling short of expectations; risk of tightening policy regulations in the field of technology; risk of slow inventory clearance due to slow capital expenditure reduction in some enterprises; downside risk of consumer electronics and data center demand exceeding expectations; increased market competition, risk of loss of core technical personnel, etc.
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