Semiconductor 1Q24 Update – Memory in full recovery mode June 6, 2024 99

  • 1Q24 revenue growth accelerated significantly to 45% YoY (4Q23: 25% YoY). NVDA’s >3.5x spike in revenue (accounting for 22% points of the sector’s YoY growth) helped to offset lingering weakness in Equipment.
  • AI demand remained very robust, with AI GPUs (NVDA) still the main beneficiaries. Memory companies are seeing a huge return to growth after 4 quarters of decline. Semiconductors still outperforming vs S&P 500 on 1M/3M/1Y.
  • Forward guidance is for 2Q24e revenue growth of ~32% YoY. We expect growth to be supported by increasing AI-related spending on GPUs and High Bandwidth Memory (HBM), a slight recovery in the PC market, and higher wafer fabrication of <7nm chips.
























Processor: More upbeat on PC demand due to upcycling and improved customer inventory levels. Demand for Data Centre GPUs still outstripping supply. All three processor companies issued results that were either in line with or beat expectations. Both Intel and AMD’s PC segments benefitted from improving channel inventory levels while also seeing commercial PC strength, with OEMs beginning to ramp up their new notebook designs. Intel’s PC business was +31% YoY, while AMD’s grew +85% YoY. However, forward guidance from both Intel and AMD was lukewarm, with Intel noting some near-term wafer assembly supply constraints and AMD dragged by its embedded and gaming segments. Demand for AI GPUs remains extremely robust, with demand still outstripping supply. AMD increased FY24e sales expectations for its MI300x AI GPU to >US$4bn (prev. US$3.5bn), while Nvidia is seemingly ramping its AI GPU (Hopper + Blackwell) supply at a ~US$4bn a quarter rate – which would put its FY25e AI GPU revenue contribution at ~US$105bn (~30% higher than our previous estimates and >2x YoY). Nvidia also sees a broadening in its customer base as different industries begin their AI journey, and announced a yearly cadence for new product launches post-Blackwell. Catalysts for processor growth are 1) early-stage enterprise refresh cycle and AI PC momentum, 2) recovery in traditional server demand, and 3) continued robust demand for AI GPUs for inferencing and training AI models.


Memory: Pricing continues to climb due to demand-supply dynamics tightening, and all 3 companies are back to profitability. Micron, Samsung, and SK Hynix all reported an acceleration in revenue growth due to 1) rapid growth in demand for High Bandwidth Memory (HBM) + DDR5 to support stronger AI server demand – Nvidia’s new Blackwell AI GPU platform features ~33% more HBM content vs older platforms; 2) improving end-market inventory for Data Centres; and 3) higher prices for memory due to tighter demand-supply dynamics. More importantly, all 3 companies returned to profitability after 4 quarters of losses. Given the significant AI-related demand for memory, the expectation is for memory prices to continue rising further into FY24e, with the memory market entering a full recovery with the strength of AI and demand improvement from PC upcycling due to growing interest in AI PCs and the end of Windows 10 support. Both Samsung and SK Hynix expect higher FY24e CAPEX as they increase investments to meet the elevated levels of demand – while allocating production more to server storage use cases (vs PC + mobile). Only Micron issued forward guidance, expecting 2Q24e revenue growth to further accelerate to 76% YoY.


Equipment: Improving inventory and utilisation levels, optimistic forward guidance indicates the sector has bottomed out. Semiconductor equipment makers ASML, Applied Materials, and Lam Research all reported 1Q24 revenue, either in line with or above estimates. ASML’s YoY growth contracted quite significantly (-21% YoY) as orders slipped to EUR3.6bn from EUR3.8bn in 1Q23, while Lam Research came close to ending 4 quarters of contraction as revenue growth was almost flat YoY (4Q23: -29% YoY) – mainly due to stronger domestic investments in China (42% of total revenue). Equipment utilisation rates continue to improve, in line with a general recovery in the semiconductor industry. Forward guidance from all 3 companies was positive, with Lam Research expecting a reacceleration in growth (+29% YoY). AI-related demand remains the key driver for equipment companies, with Applied Materials now expecting HBM-related DRAM and packaging revenue to >6x YoY in FY24e (>US$600mn). Lam Research also increased its FY24e expectations for wafer fabrication equipment (WFE) spending by US$5bn to US$92.5bn.



Foundry: Building out new Fabrication plants to support increasing semiconductor demand. TSMC reported results that beat expectations on all levels. Its 1Q24 revenue grew 13% YoY, a sharp rebound after 4 quarters of contraction. The company laid plans to build an additional 7 fabrication plants (3 in Arizona, 2 in Japan, 2 in Germany) to support future demand – particularly in 3nm and 2nm chips. It expects the first of its Arizona plants to begin volume production in 1H25, and construction on its Japan and Germany plants to begin in 4Q24. TSMC also guided to continued acceleration in growth (2Q24: +27% YoY) as it sees significant demand in its advanced technologies nodes (<7nm) while maintaining its FY24e revenue growth forecast of 20-25% YoY – implying a stronger 2H24e vs 1H24 with more ramp-up of its 3nm chips. It also expects revenue from AI servers to >2x in FY24e, representing 10-15% of total revenue. However, TSMC did guide to a slight 110bps decline in gross margins due to 1) higher electricity costs (which it is working on passing through to customers) and 2) production lost from the 7.2 magnitude earthquake in Taiwan on 3 April 2024. TSMC also reduced its overall semiconductor market growth expectations to 10% YoY (from 20% YoY prev.), with a more mild and gradual recovery due to still sluggish traditional server demand and a shift in expectation from growth to contraction for automotive platforms.

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Jonathan Woo
Research Analyst

Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.

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