- Bank of America expects silicon-based chips to grow to $10 billion by 2027
- Both InfiniBand (IB) and Ethernet can be used for AI computer networks.
- Nvidia, Broadcom and Marvell Technology are expected to gain market share.
Despite recession fears and pessimistic forecasts for stock markets in 2023, mega-tech stocks had one of their best years.
Year-to-date, the S&P 500 is up 14% and the tech-heavy Nasdaq is up 30% as of Friday. Much of the profits came from a handful of tech giants who benefited from the hype and development of artificial intelligence.
Stocks like Nvidia (NVDA) have already climbed 198% over the year, Meta (META) 130%, Microsoft (MSFT) 40% and Google (GOOGL) 37%.
Some investors may feel they have missed an opportunity to rely on AI. But Bank of America expects the global AI software market to reach $900 billion by 2026 from just under $600 billion this year.
Demand for hardware is expected to accelerate over the next five years with the emergence of generative artificial intelligence to create new content and data. But generative AI is different than your average search engine. Developing the capabilities of such technology requires a heavy load of specialized hardware that helps speed up the machine learning process.
As major technology cloud providers begin to integrate generative AI into their centers, demand for things like network silicon will skyrocket. The overall target market for silicon-based chips is expected to reach $10 billion by 2027 at a compound annual growth rate of 40%, according to a June 21 memo led by Bank of America strategist Vivek Arya. It is It will increase from $2 billion in 2022.
Rising demand will allow new winners to join AI hardware provider NVDA.
For example, generative AI uses two communication technologies in computer networks: InfiniBand (IB) and Ethernet. And while InfiniBand currently leads the demand, he expects Ethernet to take the lead in the future, the memo said. Traditional Ethernet has more use cases as it has already been introduced for things like internet connectivity. It can also be used on the AI server frontend and backend. InfiniBand, on the other hand, is only used on the backend.
The investment bank expects Ethernet to attract most of the $10 billion market share, growing from $500 million to $6 billion by 2027. IB demand is also expected to grow from $1.5 billion to $4 billion. IB accounted for 75% of the $2 billion market in 2022.
So far, Nvidia (NVDA) has had a head start by optimizing IB and becoming the sole major provider of IB through its acquisition of Mellanox in 2019. But as Ethernet takes over, Broadcom (AVGO) and Marvell Technologies (MRVL) are also expected to join the hardware giant, according to the memo.
