A.I. Seen as $15B Opportunity for Silicon Suppliers - MKM (INTC) (NVDA) (XLNX)

November 16, 2016 12:19 PM EST
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MKM Partners sees artificial intelligence as a major segment, with a potential $15 billion opportunity by 2025. Nvidia's (NASDAQ: NVDA) meteoric growth, Qualcomm's (NASDAQ: QCOM) deal for NXP (NASDAQ: NXPI) (motivated by autonomous driving processing), and Intel's (NASDAQ: INTC) Artificial Intelligence Day and prior Autonomous Driving Day at IDF, each shows major movement in silicon suppliers towards this segment.

MKM's analyst Ian Ing mentioned in a note, "we think Nvidia (GPUs), Intel (FPGAs, co-processors, full-custom), and then Xilinx (NASDAQ: LXN) (FPGAs) are most favorably positioned to benefit from elevated A.I. investor attention and headlines as we conclude 2016. We think AMD (NYSE: AMD) is too resource constrained to fully address the opportunity."

As artificial intelligence breaks headlines, the largest semiconductor suppliers have attempted to highlight their capabilities, or have engaged in M&A to supplement unmet needs in this area. AI is being discussed in areas including Government, Manufacturing, and Defense. The Oil & Gas industry devotes entire conferences to the topic. AI is even being discussed at hyperscale cloud user conferences hosted by Facebook, Amazon, and Alphabet.

To drive adoption, good AI vendors must have domain expertise, extensive applications collateral to address emerging uses of AI like Oil & Gas, and a technical sales and field applications workforce. Nvidia is participating aggressively in the AI opportunities, while AMD is under-resourced. Nvidia GPUs are programmed in the widely used CUDA language and is attractive to university and research developers. Hardware based on Nvidia GPUs is widely used in cloud applications. Facebook has deployed 1000s of “Big Sur” GPU hardware blades.

Ian Ing commented, "We estimate artificial intelligence could become a $15+ bn silicon opportunity by 2025. This is based on the combination of: (1) data center machine learning/acceleration ($2- 4bn opportunity), (2) autonomous driving ($9bn+ opportunity per 10% unit share increment), and (3) another $4bn for additional deep learning opportunities (drones, robots, niche verticals etc.)."

Data center machine learning could become a $2-4bn opportunity by 2025. Xilinx believes their FPGAs address $200mn-$300mn by 2020. Intel estimates this could be a $1bn future FPGA opportunity. For Nvidia, GPU accelerators could become a $2-4bn opportunity assuming a 10%-20% increment to the $18bn present server opportunity. Last quarter’s HPC/Cloud segment implies a $500mn/Y run rate for this fast-growing opportunity.

MKM Partners rates Intel and Nvidia's as Buy, with price targets of $44.00 and $87.00, respectively. Xilinx remains as a Neutral rating with a $53.00 fair value estimate.

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