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Week 43 Equity Strategy: Paul ChewDutch semiconductor equipment maker ASML's share price collapsed 20% in two days.3Q24 results were within expectations with earnings growth of 10% YoY. However, order bookings secured during the quarter were half of expectations and the company lowered 2025 revenue guidance. Reasons for the lowered guidance were slow recovery in mobile, PC and auto end demand, specific customer technology ramp-up (i.e. Intel and Samsung) and risk of export controls on sales to China. AI demand is healthy with upside potential. ASML is still guiding a 16% revenue growth in 2025 because of a huge backlog. Annualised bookings are still growing 22% YoY or EUR20bn but market expectations were just too high. On the impact on suppliers, such as Frencken, we believe there remains revenue growth from ASML as it is looking to expand the supply chain into ASEAN. However, expectations need to be tapered down. |
AI remains the stellar growth area for semiconductors.
TSMC reported a 54% growth in 3Q24 earnings.
Growth was supported by more than tripling of AI processors in 2024.
Guidance is for revenue to grow 35% to another record level of around US$26.5bn.
TSMC results are a reminder that the boom in AI spending is still healthy.
| "Another milestone is that Open AI released a new model called Strawberry o1. The AI model responds to certain science and maths questions with answers that exceed PhD levels. This AI model scales up its capabilities by training on the output not just the data." |
Nvidia CEO Jensen Huang also mentioned that its new Grace Blackwell chip (GB200) is in full production and demand is insane.
There is an arms race in AI.
Big Tech is racing for artificial general intelligence (AGI) and this requires power, computing power and data.
Other companies are jumping into this supercomputing race.
Tesla is building a 100,000 Nvidia H100 GPU cluster for xAI in Memphis.
Oracle plans a 131,072 GB200 cluster by 1H25.
Critically, the pace of change is tremendous.
| In Singapore, data centre demand remains robust. For the 2nd consecutive quarter, Keppel DC REIT announced rental reversion on its Singapore data centre of >40%. When asked what these rents are benchmarked against, it is demand-supply driven. From our perspective, it is just how much a landlord can squeeze when there is no alternative or supply. Otherwise, who pays 40% higher rent? The total capacity of data centres in Singapore is around 70 data centres with 1.0 GW capacity. Since the moratorium in 2019, new supply has been minimal, averaging 15MW p.a. (2020-2023). With the lifting of the moratorium in 2022, 300MW of additional capacity is only expected to enter the market largely in 2026/27. The supply constraint should continue. Paul Chew Head Of Research |
