The Next Wave for AI Winners
The year 2023 marked the commencement of a fierce competition in the realm of artificial intelligence (AI). Major technology firms made substantial investments in software development and specific chips from leading companies like Nvidia to train their AI models. This led to several chipmakers enjoying significant sales growth and emerging as major victors, thanks to the soaring demand from well-funded tech innovators.
However, the upcoming breed of AI winners won’t comprise companies that manufacture chips meant for training AI models. Instead, the spotlight will belong to the companies producing chips utilizing AI models to generate responses to prompts. The demand for these so-called inference chips is set to surge, as consumers increasingly seek the ability to use AI on their devices, rather than relying on sending data to a server and waiting for a response.
Analysts at UBS have projected that by 2025, inference chips will account for 20% of all AI chips sold, representing a substantial increase from the 10% share observed in 2023. Furthermore, they forecast total revenue from inference chips to swell to a staggering $30 billion within the next five to 10 years.
On-device AI is crucial for applications necessitating low latency and unwavering reliability, such as autonomous vehicles or scenarios where data security and privacy are non-negotiable, for instance in medical or government records. As the demand for on-device AI continues to climb, several companies are poised to reap the benefits.
Here are three such companies that could emerge as surprise AI winners in 2024.
Image source: Getty Images.
1. Qualcomm’s Potential to Lead the Charge
During an analyst briefing in November, Cristiano Amon, the CEO of Qualcomm, expressed his belief that high-performance on-device AI was set to become a necessity in the coming years. He outlined Qualcomm’s position as a leading beneficiary of this trend, driven by the escalating demand for more potent chips and the potential for expansion into new device categories.
Qualcomm has been closely collaborating with renowned AI models from Microsoft, Meta Platforms, and Baidu to ensure their Snapdragon smartphone chip designs can produce responses faster and with greater energy efficiency than their competitors. Moreover, the company envisions opportunities to broaden its presence in the realm of PCs while contributing to the wider adoption of the headset-computer format, including augmented reality, among the masses. In addition, Qualcomm plays a pivotal role in automotive computing.
Simultaneously, Qualcomm boasts a formidable position in the smartphone industry, with its modem designs being ubiquitous and its mobile chips featuring in numerous high-end Android devices. Despite the impending loss of Apple’s licensing business, Qualcomm is poised to make a swift recovery, given its secure position with most Android handset makers and its foray into new device categories.
As the demand for power-efficient, high-end chips capable of on-device AI inference surges, more device manufacturers are expected to turn to the advanced chips offered by Qualcomm. With shares trading at a modest 15 times analysts’ estimates for this year’s earnings, the stock appears attractively priced, considering its potential for steady revenue growth from its core business, coupled with substantial upside as on-device AI inference gains traction.
2. MediaTek’s Push into the Limelight
MediaTek, the largest chip-design house in Asia, has traditionally focused on multimedia and wireless technologies and has subsequently expanded into the domains of mobile devices and Internet-of-Things products. In August, the company inked a deal with Meta to build a comprehensive edge computing ecosystem aimed at accelerating AI application development across smartphones, IoT devices, vehicles, smart homes, and other edge devices.
MediaTek’s concerted entry into smartphones and AI chips presents a significant threat to Qualcomm, and the Taiwanese company has already secured notable victories against its larger rival. In a significant move, Meta selected MediaTek to power its augmented reality glasses in November.
The introduction of the new Dimensity 9300 chip design by MediaTek poses a direct challenge to Qualcomm’s highest-end chip, which could potentially facilitate MediaTek’s expansion into a broader spectrum of flagship devices.
Moreover, the Dimensity 8300, designed for midrange smartphones, holds great promise. As the first midrange smartphone chip tailored for on-device generative AI, it stands poised to dominate an increasingly critical market segment.
Traded at just 16 times the estimates for 2024 earnings, shares of MediaTek appear to offer exceptional value, given the potential for growth resulting from its foray into high-end smartphones and the consolidation of its position in midrange devices. However, investors keen on purchasing MediaTek stock will need to do so on the Taiwan Stock Exchange, necessitating access to a broker supporting foreign stock trades, along with the fortitude to withstand fluctuations in foreign exchange rates and potential additional fees levied by their broker.
Any investment in a foreign company, whether in the form of American depositary receipts (ADR) on a U.S. exchange or trading on a local exchange, carries inherent geopolitical and regulatory risks. Hence, investing in MediaTek, like any Taiwanese company, demands vigilance and prudent oversight. While this proposition may appeal to investors with a higher risk tolerance, those averse to such risk may wish to consider the other potential surprise AI winners discussed herein.
3. Apple’s Ongoing Evolution
Apple, a leading force in the tech industry, is no stranger to innovation and reinvention. With its established track record of pushing the boundaries and shaping the future, the company remains a formidable contender in the realm of AI. As the landscape of on-device AI chips continues to evolve, Apple stands poised to harness its strengths and contribute to this transformative wave.
Investors eyeing potential AI winners in 2024 should keep a close watch on Qualcomm, MediaTek, and Apple. These companies are well-positioned to ride the wave of on-device AI chips and emerge as success stories in the coming year, adding value to the portfolios of investors astute enough to recognize this burgeoning opportunity.
Apple’s Play in On-Device AI and its Financial Prospects
Apple’s Expanding Role in On-Device AI
Apple, though not widely known for generative AI, is poised to capitalize on the surging demand for on-device AI inferences. The tech giant, with its laser focus on data security, is positioning itself to keep personal data securely on personal devices rather than sending it to external servers.
Apple’s Pursuit of Advanced Chip Processes
Apple is renowned for producing cutting-edge smartphone processors and has established a strong collaboration with Taiwan Semiconductor Manufacturing Co. This partnership ensures access to the market’s most potent and energy-efficient chip processes. Apple’s vertical integration further solidifies its stance as a frontrunner in offering advanced AI technologies exclusively on its devices.
Potential Implications of Apple’s Strategy
Apple’s orchestration of on-device AI capabilities holds significant potential for the integration of generative AI into its popular platforms such as iMessage or Siri. This move could instantly grant Apple access to a vast user base and fortify customer loyalty within its ecosystem. Moreover, there is speculation that Apple might consider a subscription model for accessing advanced on-device generative AI features.
Apple’s Financial Outlook
While Apple may not fit the conventional mold of an AI play, its forward-thinking strategy positions it as a potent contender in the burgeoning on-device AI space. Although the stock commands a premium valuation, slight overpricing is warranted due to its substantial net-cash balance and a robust share-repurchase program. As AI processing increasingly migrates to its devices, Apple is poised to emerge as a major beneficiary.
Investor Advisory for Qualcomm
On another note, investors keen on Qualcomm would benefit from deliberating on factors that could influence their investment decisions. The Motley Fool Stock Advisor, renowned for its astute insights, has compiled a list of the ten best stocks for investors, omitting Qualcomm. The aforementioned service has proven to significantly outperform the S&P 500 index since 2002, offering a promising blueprint for investment success.
