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Could this Nvidia partner be a new AI winner? Evercore ISI thinks so

Published 04/03/2024, 09:28 AM
Updated 04/03/2024, 09:28 AM
© Reuters.

Several companies saw their stock prices skyrocket over the past year or so, most notably Nvidia (NASDAQ:NVDA) and other leading chipmakers. However, Evercore ISI believes there is another company, an Nvidia partner, that may be overlooked amidst this boom.

Generative AI continues to be the most transformative force in the tech world, revolutionizing industries and fueling unparalleled growth in companies at the forefront of this development, which some see as the biggest since the invention of the internet.

Unprecedented rally in Nvidia, AI stocks

Among the first names that come to mind when GenAI is mentioned is Nvidia, a pivotal player in this revolution.

In 2019, Nvidia was valued around $100 billion. Today, driven chiefly by unprecedented demand for its AI chips, the company is the world’s third most valuable company, with a market cap of more than $2.2 trillion.

Nvidia stock is already up 80% in 2024, extending its eye-popping gains from last year. The chipmaker’s share price currently sits around the $890 mark, though many Wall Street analysts believe there’s room for further growth.

However, Nvidia is hardly the only business capitalizing on the ongoing AI frenzy.

To be more specific, companies specializing in the hardware essential for AI computing are emerging as a new focal point for investors.

Established players like Micron Technology (NASDAQ:MU)., Super Micro Computer (NASDAQ:SMCI), AMD (NASDAQ:AMD), and Dell Technologies (NYSE:DELL) have also seen their stock values rise rapidly, fueled by solid financial performance and heightened expectations for the upcoming earnings season.

The Philadelphia Semiconductor Index reflects this trend, with nearly half of its listed companies experiencing a surge of at least 10% in their stock prices this year, elevating the index's price-to-sales ratio to its highest in over two decades.

This momentum underlines the growing investor interest in the AI sector, particularly in companies that might emulate Nvidia's remarkable success.

Nvidia continues to dominate the AI processor market, but the AI hardware ecosystem is vast, encompassing not only processors but also memory chips, servers, networking components, and the machinery for chip production.

Evercore ISI says this could be the next big AI winner

Apart from the aforementioned, well-known semiconductor companies, analysts at Evercore ISI identified another company that could benefit from the next phase of the AI sector's development.

According to them, Amphenol Corporation (NYSE:APH), a manufacturer of advanced interconnect systems, “ is providing sizable content for the NVDA NVL72 system that was introduced a few weeks ago and could be incremental to their current $500M+ AI revenues.”

NVL72 is Nvidia’s rack-scale system that uses NVLink to mesh 72 Blackwell accelerators into one big GPU.

Evercore ISI said in its note that NVL72 uses a significant amount of copper connectivity, incorporating a substantial volume of Amphenol’s content.

This includes components such as copper cables and interconnects, with the value of APH materials in each system estimated to be between $100,000 and $120,000. Although the exact distribution of these components is not yet clear, the analysts believe that current allocations are predominantly favoring APH.

“We believe APH is well-positioned to benefit from the large investment in AI solutions by providing highly complex and efficient connectors for AI servers and networking,” said analysts.

“APH’s marketleading positioning and differentiated product portfolio in this end market alongside their impressive go-to-market capability should enable them to become the market leader here.”

Nvidia’s implementation of extensive copper cabling—exceeding two miles—for its GB200 NVL72 GPU compute solution presents a notable revenue opportunity worth examining.

Preliminary estimates indicate that this new system could potentially generate approximately $700 million in revenue and contribute $0.23 to earnings per share (EPS) for APH by the calendar year 2026.

In the long term, revenue from this initiative is expected to surpass $1.0 billion, with EPS contributions exceeding $0.30, Evercore’s team said.

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