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Advancements and Competitive Dynamics in AI Chip Technology

GOOVER DAILY REPORT June 28, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Samsung's Advancements in AI Chip Technology
  3. Taiwan Semiconductor Manufacturing Company (TSMC): Market Position and Technological Developments
  4. Nvidia's Market Surge and AI Leadership
  5. Competitive Dynamics in the Semiconductor Industry
  6. Conclusion

1. Summary

  • The report titled 'Advancements and Competitive Dynamics in AI Chip Technology' examines recent progress in AI chip technology and the competitive environment involving key players such as Samsung Electronics, TSMC, and Nvidia. It highlights Samsung's innovative strides and strategies to catch up with TSMC in the semiconductor market, focusing on technological breakthroughs such as gate-all-around (GAA) and backside power delivery network technology. TSMC’s leadership in advanced node technologies, including its 3nm and 5nm processes, and strategic client relationships, notably with Apple and Nvidia, are also examined. Nvidia’s significant stock performance and its leadership in AI technology, driven by its specialized AI GPUs, are underscored. Additionally, the report explores how the AI boom propels the semiconductor industry, influencing market dynamics and corporate strategies by increasing the demand for high-performance chips, thus driving stock prices and competitive tactics.

2. Samsung's Advancements in AI Chip Technology

  • 2-1. Technological Innovations

  • Samsung Electronics has unveiled a series of forthcoming advancements aimed at attracting artificial intelligence chip manufacturers to its manufacturing business. At its annual foundry forum held in San Jose, California, Samsung laid out its chipmaking road map and its vision for the AI era. Notable advancements include backside power delivery network technology, which places power rails on the backside of a silicon wafer, enhancing power, performance, and area while reducing voltage drop. Samsung also highlighted its gate-all-around (GAA) technology for AI products, with plans to mass produce its second-generation 3nm process in the latter half of this year and deliver GAA in its upcoming 2nm process. In 2022, Samsung became the first in the industry to begin GAA-based 3nm mass production.

  • 2-2. Market Strategies

  • Samsung is the world's No. 1 memory-chip maker but has been trying to catch up with rival TSMC in the foundry market. Samsung's share in the foundry market slid to 11% in the first quarter of this year, from 11.3% in the previous quarter, while TSMC's share rose to 61.7% from 61.2% during the same period. Despite this, Samsung's earnings are recovering due to demand for components used in AI computing systems, which support its main memory chip division and provide opportunities to win outsourcing orders. Samsung argues that its ability to offer logic, memory, and advanced packaging will rapidly advance its position in winning outsourced semiconductor manufacturing orders for AI-related chips. However, to attract larger commitments from demanding customers like Nvidia, Samsung has to prove that its production is advanced and reliable.

  • 2-3. Projected Revenue and Customer Growth

  • Samsung predicts that its AI-related customer list will expand fivefold and that revenue will increase by nine times over current levels by 2028. The company announced several new types of production technology and a layout for future AI-related chips to win customers. Despite declining to comment on the status of its efforts to supply the latest advanced memory chips to Nvidia, Samsung remains confident in its advancements. The company affirms that preparations for its 1.4nm technology are progressing smoothly, with performance and yield targets on track for mass production in 2027.

3. Taiwan Semiconductor Manufacturing Company (TSMC): Market Position and Technological Developments

  • 3-1. Advanced Node Technologies

  • TSMC has demonstrated a strong lead in the semiconductor industry through its advanced node technologies. The company has pioneered several cutting-edge manufacturing techniques, including the commercialisation of 7 FinFET (N7) volume production and the N5 technology. In 2023, TSMC led the mass production of 3nm chips, further solidifying its position as a leader in the industry. The 3nm process technology offers significant improvements in power, performance, and area (PPA) over its 5nm predecessor, with an expected 10-15% speed improvement and 25-30% power reduction. Additionally, TSMC has developed advanced packaging technologies like Chip-on-Wafer-on-Substrate (CoWoS) and Integrated Fan-Out (InFO) to enhance chip performance and efficiency, meeting the growing demand for high-performance computing (HPC) and artificial intelligence (AI) applications.

  • 3-2. Client Relationships and Market Demand

  • TSMC's success is attributed to its strong client relationships and the rising market demand for its products. Major clients such as Apple, AMD, and Nvidia depend on TSMC's advanced process technologies. In 2023, Apple accounted for about 25% of TSMC’s revenue, with AMD contributing 7% and Nvidia 11%. The company has strategically positioned itself as a key supplier of advanced processors used in various high-demand products like iPhones, iPads, MacBooks, Ryzen and EPYC processors, and Nvidia GPUs. The bullish sentiment towards AI technology significantly boosted TSMC's market demand. The company's collaboration with ASML and plans to increase chip production prices indicate strong growth prospects and investor confidence. Additionally, announcements of significant investments and strategic partnerships in AI and semiconductor technology have continued to secure its market position.

  • 3-3. Stock Performance and Market Capitalization

  • TSMC's stock performance has shown strong bullish movements throughout 2024, largely fueled by increased demand for AI chips and positive market sentiment. Significant price movements were observed on multiple occasions, as noted in various reports. For instance, TSM stock surged by 5.0% on May 18, 2024, and 6.2% on May 12, 2024, attributable to strong investor confidence and strategic developments, such as US restrictions on China’s access to chip-making services and expansions like the hiring plans for its European subsidiary. Market analysts, including those from Goldman Sachs and JPMorgan Chase, have raised their price targets for TSMC, driving the stock price closer to the US$1 trillion market capitalization. TSMC’s American depositary receipts (ADRs) have experienced significant gains, solidifying the company's position among the top global companies by market value. The overall positive sentiment in the semiconductor industry, driven by technological advancements and increasing AI application demands, continues to support TSMC’s bullish stock performance.

4. Nvidia's Market Surge and AI Leadership

  • 4-1. Stock Performance and Market Value

  • Nvidia has experienced significant growth in its stock performance and market value. On Tuesday, Nvidia's stock price surged by 3.5% to an all-time high of $135.58, with a further increase of 0.6% to more than $136 during off-hours trading on Wednesday. This rise helped Nvidia surpass Microsoft to become the world's most valuable public company, reaching a market capitalization of $3.34 trillion. Additionally, the company’s market value has soared from about $16 billion in 2016 to approximately $3 trillion by mid-2024.

  • 4-2. Technological Leadership in AI

  • Nvidia's technological leadership in AI is propelled by its innovative AI chips. The company's transition from a maker of video game hardware to a leader in AI technology has been marked by the development of specialized AI chips essential for machine learning programs. Nvidia's CUDA computing platform, crucial for AI training and inference, and its latest H100/H200 GPUs, based on the Hopper GPU architecture, offer substantial improvements in computational capabilities. The Blackwell architecture, expected to debut in data centers later this year, promises even greater advancements with performance metrics significantly surpassing those of its predecessors.

  • 4-3. Impact on Related Semiconductor Stock

  • Nvidia's rise has positively impacted related semiconductor stocks, especially in Asia. Following Nvidia's gains, stocks of TSMC, Foxconn, Samsung Electronics, and SK Hynix all experienced growth. TSMC, which produces high-performance GPUs for Nvidia, saw a peak rise of 4.34%, while Foxconn, having a strategic partnership with Nvidia, rose by 4.78%. Samsung and SK Hynix, key suppliers for Nvidia's AI chipsets, showed gains of 3.38% and 7.04%, respectively. This rise in semiconductor stocks illustrates the broader market's optimistic sentiment towards AI-driven technological advancements.

5. Competitive Dynamics in the Semiconductor Industry

  • 5-1. Samsung vs. TSMC

  • In the semiconductor industry, Samsung Electronics and TSMC are two of the most significant competitors. TSMC holds over 60% of the global market share as of Q4 2023, demonstrating a strong lead in the foundry market. TSMC's advanced manufacturing capabilities, including its 3nm process technology, and its key partnerships with tech giants like Apple, AMD, and Nvidia, strongly contribute to their market position. Meanwhile, Samsung, while leading in memory-chip production, is striving to catch up in the foundry market. Despite holding only 7.5% market share, Samsung is not to be underestimated, particularly as it has started mass production of 3nm chips using gate-all-around (GAA) technology. Moreover, Samsung is continuously innovating in V-NAND and DRAM technology crucial for data-intensive applications. Both companies are making aggressive investments in R&D, with TSMC planning to introduce 2nm and 1.4nm processes by 2025 and 2027, respectively, and Samsung aiming to further advance its GAA technology.

  • 5-2. Strategic Alliances and Mergers

  • Strategic alliances and mergers are playing a critical role in the semiconductor industry's competitive landscape. For instance, SK Telecom's AI chip startup, Sapeon Korea Inc., is merging with Rebellions Inc., to create a leading AI chip company in South Korea. This merger aims to capitalize on the growing demand for AI services and improve their competitive position globally. TSMC maintains strategic partnerships with tech industry leaders like Apple, AMD, and Nvidia, which significantly bolster its revenue. Apple's exclusive reliance on TSMC for advanced processors and Nvidia's agreement to price increases to secure advanced packaging capacity are key examples of TSMC leveraging strategic alliances for market dominance. On the other hand, Samsung's collaborations with Qualcomm and IBM are critical in showcasing Samsung's semiconductor production capabilities and pushing the boundaries of innovation.

  • 5-3. Impact on Market Segments: Automotive, Consumer Electronics, Data Centers

  • The semiconductor advancements by Samsung and TSMC are significantly impacting various market segments. In the automotive industry, the ongoing chip shortage has highlighted the importance of a robust semiconductor supply chain, prompting both companies to ramp up production of automotive-grade chips. In consumer electronics, the demand for high-performance chips in smartphones, laptops, and gaming consoles drives innovation, with TSMC and Samsung's technologies directly influencing the capabilities and features of these products. For data centers and AI applications, TSMC's 3nm nodes and Samsung's GAA technology cater to the growing need for high processing power and energy efficiency. These advancements support the growth of cloud computing and AI companies, enhancing global tech infrastructure.

6. Conclusion

  • The semiconductor industry is undergoing transformative advancements due to the surging demand for AI technologies. Key players like Samsung Electronics and TSMC are leveraging state-of-the-art technologies to bolster their market positions, while Nvidia continues to lead with its cutting-edge AI capabilities. Samsung is enhancing its technological prowess with innovations such as gate-all-around (GAA) and backside power delivery network technologies to compete more effectively with TSMC. TSMC's stronghold, underscored by partnerships with major tech firms and its advanced node technologies, reinforces its market dominance. Despite the fierce competition, these companies are strategically positioning themselves to capture greater market share. However, challenges such as sustaining technological leadership, managing supply chains, and maintaining production reliability remain significant. The future of AI chip technology is promising, with anticipated advances poised to further reshape the industry and drive global technological progress. Practical applications of these advancements are expected to cater to diverse sectors, including automotive, consumer electronics, and data centers, thus enhancing overall technological infrastructure.

7. Glossary

  • 7-1. Samsung Electronics [Company]

  • A leading technology company focusing on advancements in AI chip technology. Samsung aims to enhance its market standing by improving production technology with innovations like backside power delivery network technology and gate-all-around technology.

  • 7-2. Taiwan Semiconductor Manufacturing Company (TSMC) [Company]

  • A major player in the semiconductor industry known for its advanced node technologies and strong client base, including major tech firms like Apple. TSMC is experiencing significant stock performance improvements and maintaining its market dominance.

  • 7-3. Nvidia [Company]

  • A global leader in AI technology that has seen its stock value surge due to demand for specialized AI chips. Nvidia's growth is driven by innovations in AI GPUs and strategic market positioning.

  • 7-4. Gate-All-Around (GAA) Technology [Technology]

  • A cutting-edge transistor technology used by Samsung to enhance AI chip performance. GAA technology is integral to the company's strategy to compete in the semiconductor market.

  • 7-5. Backside Power Delivery Network Technology [Technology]

  • A technology developed by Samsung to improve chip performance by reducing voltage drops. It is part of Samsung's efforts to attract AI chip manufacturers and enhance its semiconductor manufacturing capabilities.

8. Source Documents