- Bank of America says silicon-based chips are expected to grow to $10 billion by 2027
- InfiniBand (IB) and ethernet can both be used for AI computer networks.
- Nvidia, Broadcom, and Marvell Technology are set to take market share.
Despite recessionary fears or pessimistic forecasts for 2023's stock market, mega-tech stocks have had one of their best years.
As of Friday, the S&P 500 was up by 14% and the tech-heavy Nasdaq by 30% this year. Much of the gains have been carried by a small percentage of technology giants that benefited from the hype and development of artificial intelligence.
Stocks like Nvidia (NVDA) have already rallied to 198%, Meta (META) to 130%, Microsoft (MSFT) to 40%, and Google (GOOGL) to 37% for the year.
Some investors may feel they have missed their opportunity to bank on AI. But Bank of America expects the global AI software market to reach $900 billion by 2026, up from just under $600 billion this year.
The emergence of generative artificial intelligence, which creates new content or data, will accelerate demand for hardware in the next five years. But generative AI isn't like your average search engine. Developing the capacity for such a technology requires a heavy load of specialized hardware that can help speed up the machine learning process.
As big-tech cloud providers begin to integrate generative AI into their centers, the demand for things such as networking silicon is set to skyrocket. The total addressable market for silicon-based chips is expected to grow at a compound annual growth rate of 40% to $10 billion by 2027, according to a June 21 note by Bank of America strategists led by Vivek Arya. That would be up from $2 billion in 2022.
The growing demand will allow new winners to join AI hardware provider NVDA.
For example, generative AI uses two types of communication technology in its computer networks: InfiniBand (IB) and ethernet. And while InfiniBand is currently leading demand, moving forward, the note reads that ethernet is expected to take the lead. Traditional ethernet has more use cases because it's already deployed for things like internet connectivity. It can also be used in the front- and back-end of AI servers. On the other hand, InfiniBand is only used in the back end.
The investment bank expects ethernet to attract most of the $10 billion market share, growing from $500 million to $6 billion by 2027. Demand for IB will also grow from $1.5 billion to $4 billion. IB made up 75% of 2022's $2 billion market.
So far, Nvidia (NVDA), through its 2019 acquisition of Mellanox, has had a head start by optimizing IB and becoming the only major provider of it. But as ethernet takes the lead, Broadcom (AVGO) and Marvell Technology (MRVL) are expected to join the hardware giant, according to the note.
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