In a world of artificial intelligence (AI), semiconductors are the new ‘oil’, says Munro Partners’ founding partner and chief investment officer, Nick Griffin.
During a panel discussion at the Portfolio Construction Forum Markets Summit Mr Griffin told the audience that a deep-rooted structural change will impact markets over the next decade or more.
“As we move into the fourth era of computing, which is the era of AI we will start to see the next big inflection in semiconductor demand,” says Mr Griffin.
“This is a time of exciting possibilities and huge investment potential via artificial intelligence and machine learning technology.
“The miniaturisation of integrated circuit components and the exponential speeding up of computer power enables new technological possibilities, such as AI. This also helps to drive costs down.
“In 1971, Intel’s first chip contained roughly 2,000 transistors compared to Nvidia’s latest graphics processing units which contain 81 billion.
“These technologies enable gigantic volumes of Cloud based real time data to be generated and manipulated from virtually unlimited connectivity.
“We are seeing this used in traffic lights, fridges to predictive chatbots” says Mr Griffin.
With endless possibilities of how AI can be applied, large language models rapidly scaling their parameters and the complexity of problems being solved, consumers and industries are quick to adopt AI functions as their ‘co-pilot’.
“ChatGPT reached 100m users in 3 months, being one of the fastest tech adoptions in history. To provide some perspective, it took Netflix 7 years and Tik Tok 3 years to reach the same amount of users” says Mr Griffin.
The semiconductor industry has grown at about 8 per cent a year over the past 20 years but is now poised to hit a ‘brewing sandstorm’ of accelerated growth.
“As costs continue to fall and the global appetite for high-performing computer power continues to grow, semiconductor demand is increasing exponentially.
“For every big technology company – such as Samsung or Apple – there are dozens of providers further down the supply chain. As global growth investors, we liken investing in these companies to the age-old analogy of ‘selling picks and shovels to miners’,” says Mr Griffin.
One of those companies is Dutch lithography equipment supplier ASML. ASML is now the only manufacturer of the photolithography machines that enable semiconductor design to meet the AI era’s computing power requirements. ASML supplies these machines at very high margins to technology companies like Samsung and Intel.
“When it comes to ASML, we see a path to the doubling of earnings over the next two years, and therefore expect its share price to reflect this over a similar period, as ongoing structural earnings growth drives structural share price growth.
“This brewing sandstorm of semiconductor demand will create a handful of investment champions and an open canvas for possibilities of tomorrow.” says Mr Griffin.
