Nvidia (NVDA) partner SK Hynix (000660.KS) plans to invest nearly $4 billion to build an advanced chip-packaging facility in West Lafayette, Indiana, according to a WSJ report. The investment is a boon to President Biden’s goal to bring more extensive chip production to the US. TD Cowen Managing Director Matthew Ramsay joins Yahoo Finance Live to discuss what the investment means for the semiconductor sector.
Ramsay explains many of the top chip companies driving the AI and PC market manufacture most of their products in Taiwan. However, SK Hynix’s efforts to create an Indiana plant can be seen as a long-term plan to build out manufacturing and other layers of the supply chain in the US and Europe –– changes Ramsay says are “super important for the industry.”
“Everyone’s in this boat together,” Ramsay says of chip makers’ Taiwan concentration. However, Ramsay notes Intel is also pushing to diversify its manufacturing away from a single hub, having manufactured stateside “for decades.” Ramsay adds that Micron could benefit from CHIPS Act funding, a “necessary step for them to regain competitiveness with Nvidia” and other tech names.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s Note: This article was written by Gabriel Roy.
Video Transcript
– Nvidia partner SK Hynix planning to invest around $4 billion to build a chip packaging facility in West Lafayette, Indiana. This, according to a report from the Wall Street Journal. Now, South Korean chip maker, SK Hynix, serving as NVIDIA’s exclusive partner for its most advanced GPUs. This is according to the report. While the investment, it’s a boon to President Biden’s goal to bring more extensive chip production here to the US.
So here to talk a little bit more about what this means for the semiconductor landscape, we want to bring in Matthew Ramsey. He’s TD Cowen’s managing director and senior research analyst. It’s great to see you here. So talk to us just more so about, obviously, further investment with making chips stateside here within the US. What’s the broader impact down the line for the chip industry, for the chip sector?
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MATTHEW RAMSAY: Oh, good morning. Thank you for having me on. Yeah, it’s a major initiative the US government handing out significant CHIPS Act funding. And you mentioned SK Hynix in your opening comments there. But Intel announced last week, 8.5 billion in grants and another $11 billion in potential loans to build factories in the United States. It’s no secret that Apple, Qualcomm, NVIDIA, and AMD– lots of the top chip companies in the world that are driving the PC market, the smartphone market, the data center and the AI market, are all manufacturing most of their products in Taiwan.
And there’s obvious political tensions around Taiwan with the US and China. So the industry investing over a very long term to diversify geographically to Europe and also to the United States chip production, not just high end chip production, but as you mentioned, packaging, testing a whole bunch of layers of the supply chain is super important for the industry and sort of long term contingency planning and supply chain management for the whole industry. I think NVIDIA is super topical today with investors.
But it’s anything that you have in your household or in your life that has electronics in it has chips that come from Taiwan. And I think the industry is, and a lot of governments are spending time and money trying to diversify the supply chain. And I think that will continue going forward. It’s going to take time.
– Yeah
MATTHEW RAMSAY: We’ve been to some of the TSMC factories in Taiwan. And every building that you can see in every direction is a supplier into the fabs. So it’s not just replicating the fabrication of chips and the manufacture of chips, but that entire supply chain and it’s going to take time. But it’s really encouraging to see the investments by the United States government and the European Union and a lot of other political figures that are understanding the importance of this supply chain diversification.
– Well, given that you’ve seen that up close for names that are not Nvidia, the TSMC of the world that you just mentioned, I’m curious about any of Nvidia’s competitors that could stand to benefit from the Biden administration’s push to increase domestic chips production. What are the other names that could really get a needed push that could allow them to compete more directly with NVIDIA from this chips production push from the Biden administration?
MATTHEW RAMSAY: Well, it’s a good question. I think there’s a couple things to think about there. There’s one, everybody’s kind of in this boat together in terms of concentration of supply in Taiwan and in Asia. But, there’s a couple of companies that are really pushing one is Intel. There are some challenges currently with their product roadmap for AI and for servers relative to their competitors, NVIDIA and AMD.
But manufacturing, stateside, is something that Intel has done for decades. They’re the largest chip manufacturer in the United States by a wide, wide margin. They have big factories in Ireland and in Israel, and in Europe and Asia respectively. Micron is another company that– there’s three big memory suppliers. You guys mentioned one of them, Hynix. The other, obviously, being Samsung. But the third big memory supplier is Micron, and they’re a US-based company and could benefit from the CHIPS Act as well.
So, I think those are the two companies that are probably aligned the best. But Intel is going to get a huge amount of this money because they politicked and pushed to get the chips out over the line with the US government. And I think it will benefit them. But I’ve kind of described it as– it’s certainly a necessary step for them to regain competitiveness with NVIDIA and AMD, but I think it’s not the only step.
There’s a lot of things in their product businesses and their software stacks that need to be addressed to, really, take advantage of AI. But Intel dominated chip manufacturing globally for three or four decades. They’ve had some challenging times over the last five to seven years. And they will certainly be a big beneficiary of these dollars that are being handed out when and if they get their product roadmaps back on track to be competitive at the high end.
– Now, let’s talk about NVIDIA. That is what investors have been wanting to talk about. It’s not that obvious, they’ve been closely tracking now for quite some time. You joined a number of your colleagues out there, recently raising your price target on NVIDIA. Your new price target out now is 11,000 bucks. I’m curious, when we talk about that endless momentum that we have seen behind NVIDIA stock, what’s the key, what did you walk away from the big event just last week with that you’re so convinced that this movement to the upside is going to continue?
MATTHEW RAMSAY: Well, we’ve been– I think NVIDIA’s been our top pick in our team for the last 18 months or more. And the momentum continues, as you say. The big thing from the GTC conference last week, well, other than– I’m not sure that I’ve ever seen a semiconductor executive speak in a keynote in an entire full NHL hockey arena with 12,000 people before. So that gives you some level of an idea as to the interest and the importance of this company and its leadership in the AI space right now.
But the other big thing from last week was the launch and details around their new Blackwell GPUs, which are taking the training of AI models performance up by about four or five times versus their hopper generation. And quite remarkably, the inference performance for that part of the AI workload for certain configurations of their new Blackwell product, it’s raising that performance level 30 times versus the product that they’re shipping currently on Hopper.
And so, if you look at the software stacks that they’re doing, the fact that they’re attacking the entire system across CPUs, GPUs, their own specialty networking, their own specialty memory, they’re building full stack servers– a lot of their competition are doing just inference, or just training, or just CPUs, or just GPUs. NVIDIA is attacking the entire stack. And I think the momentum that we’re seeing now transitioned from not just the big internet hyperscale companies now into other vertical industries like climate change, like health care, and slews of others. I think it gives us very high confidence in the momentum continuing for at least the next four to six quarters.
I mean, when we talk to investors, most of the fear that anybody feels around NVIDIA is just the fact that the level of growth and the speed of growth of their data center business is just uncomfortable because it’s so unprecedented. It’s not because we see any kind of slowing of the momentum at all. And I think for us, the next six to eight quarters, as I mentioned, has got some very, very high visibility to remarkably strong growth. And then, I think we will hit some level of law of large numbers at some point, just given the scale that we’re talking.
But the data center business is going to do close to $100 billion in revenue this year. We’re modeling another 25% growth for next year. And that probably is conservative based on some of the supply chain numbers we see. And unlike what happened 20, 25 years ago in the dot com boom and then bust, a lot of companies that grew at this rate back then were not that profitable. NVIDIA just put up almost 67% operating margin quarter. And so, they’re bringing through the profitability on top of the remarkable revenue growth. And I think they’re set to continue to do that over the next couple of years.
– Yeah. And it looks like the stock down 8/10 of a percent in the market trade so far today. Matthew, thank you so much for joining us. Really appreciate it.
Tags: Chip makers diversifying production Taiwan Heres
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