RBC Capital Markets predicts that semiconductor revenue stemming from artificial intelligence (AI) applications will surge from $220 billion in 2025 to over $550 billion by 2028. Analysts Srini Pajjuri and Grant Li stated in an investor report, "Current market supply is tight, with corporate order lead times extending to 18 months, which further clarifies the industry's outlook. Infrastructure bottlenecks may cause delays for some projects, but in our view, this is not necessarily a negative factor—such constraints could instead lengthen and smooth out the AI spending cycle. Despite recent progress in custom Application-Specific Integrated Circuits (ASICs), considering the rapid iteration of AI technology and the lengthy ASIC design cycles, the dominance of Graphics Processing Units (GPUs) remains difficult to challenge in the near term."
Based on this market backdrop, the financial institution initiated coverage on several semiconductor companies with "Outperform" ratings, including NVIDIA (NVDA.US), Micron Technology (MU.US), Marvell Technology (MRVL.US), Arm (ARM.US), Astera Labs (ALAB.US), ASML (ASML.US), Applied Materials (AMAT.US), Lam Research (LRCX.US), and Lattice Semiconductor (LSCC.US). Concurrently, RBC assigned "Sector Perform" ratings to Broadcom (AVGO.US), AMD (AMD.US), Intel (INTC.US), KLA Corporation (KLAC.US), SanDisk (SNDK.US), Qualcomm (QCOM.US), Skyworks Solutions (SWKS.US), and Silicon Laboratories (SLAB.US).
The report posits that demand for High Bandwidth Memory (HBM) will be a core growth engine and has the potential to weaken the cyclical volatility characteristic of the memory market. Pajjuri commented, "AI workloads are shifting towards reinforcement learning and distributed inference, both of which place extremely high demands on memory performance. The upcoming HBM4 iteration is another significant positive, with its average selling price expected to be 30-50% higher. The explosion of generative AI is also driving demand growth for high-capacity server memory modules (DIMMs) and solid-state drives (NAND eSSDs). Although high memory prices may exert some pressure on PC and smartphone market demand, we anticipate the memory industry will maintain a supply-constrained environment through 2027."
Aligning with views from several financial institutions, the bank expects capital expenditure in the Wafer Fab Equipment (WFE) sector to maintain robust growth over the next two years. Pajjuri added, "Furthermore, the implementation of technology trends such as backside power delivery, advanced packaging, and 3D structures gives us reason to believe that the WFE market will achieve at least high single-digit growth rates over the next two years."
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