This ignored corner of the semiconductor market could be a huge AI winner

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Today’s issue in preview:

• Demand for AI compute is exploding. That’s bullish for this stock

• This ignored corner of the semiconductor market could be a huge AI winner

• You don’t own enough of this bull market that has YEARS to run

• Learn our Top Themes to buy now

This ignored corner of the semiconductor market could be a huge AI winner

Credit: Ignatiev

According to documents filed for its coming IPO, leading AI firm Anthropic expects to spend a colossal $518 billion over the next decade building AI infrastructure.

Anthropic also lists who it intends to give this money to. Broadcom (AVGO) accounts for about $161 billion in equipment lease obligations, followed by Alphabet (GOOG) at $111 billion and Amazon (AMZN) at $110 billion in computing services. Smaller expected deals include SpaceX (SPCX) at up to $84.5 billion, Microsoft (MSFT) at $31 billion, and AMD (AMD) at over $20 billion.

These are the latest extraordinary developments in the proliferation of AI agents, a megatrend we call the “Agent Supernova,” which is the explosion of AI agents that work for us, think for us, shop for us, invest for us, and solve hundreds of different problems for us.

In our March 31 research note, we detailed how this megatrend is bullish for the “power management” sector of the semiconductor industry.

These days, you can’t read an AI investment research report or listen to an AI-focused podcast without hearing about its insatiable demand for electric power and how it is the limiting factor in AI proliferation.

You hear about towns protesting AI data center power consumption.

You hear how limited access to power is constraining AI infrastructure growth.

You hear why limited power access is driving Elon Musk to operate data centers in space.

All this means that the pressure to improve AI’s power consumption efficiency – or its “unit of intelligence per unit of power ratio” – is enormous.

Any improvement in AI power-consumption efficiency – no matter how small – can yield significant cost savings across the industry.

And that means companies that help improve AI’s power consumption efficiency stand to generate large returns for their shareholders.

AI data centers need high-voltage, high-density power systems to keep everything running. Edge devices like robots, smart homes, and autonomous vehicles need efficient local power management to run locally without draining batteries or generating excess heat.

You could think of the potential savings and efficiency gains here by considering America’s automotive fleet of 280 million+ cars, which drive billions of miles every year. All that driving consumes so much gasoline that even tiny gains in overall fuel economy can yield significant fuel cost savings.

Now, instead of picturing car traffic and its gasoline consumption, think of AI’s data and “thinking” traffic and its electricity consumption.

Small power-efficiency gains across many AI data centers, communication networks, and Edge Computing devices can yield significant overall power-cost savings… plus greater growth opportunities for hundreds of AI applications.

The semiconductor industry is varied. It has dozens of large players that focus on different kinds of applications. One of these applications is electric power management: Ensuring AI data centers and communication networks use power efficiently. Ensuring cars, robots, factories, phones, hospitals, and office computer networks use power efficiently.

As AI moves into its mass adoption phase, demand for innovation and quality equipment from the power management semiconductor sector will soar. This will benefit several companies with specialized technology solutions, including:

Texas Instruments (TXN) is a $286 billion semiconductor maker. It specializes in analog chips and embedded processors. Its products perform essential functions such as managing power, converting real-world signals into digital data, and controlling electronic systems. TI sells tens of thousands of products to roughly 100,000 customers, with particularly strong exposure to industrial and automotive markets.

TI chips do not need huge amounts of computing power or electricity, which makes them perfect for edge devices like sensors, motors, and smart appliances

Onsemi (formerly ON Semiconductor) (ON) is a $32 billion semiconductor maker specializing in power-management and sensing chips, with a strong focus on automotive and industrial markets. Its chips help efficiently control and convert electricity in products such as electric vehicles, EV chargers, solar systems, industrial equipment, and data centers

Navitas Semiconductor (NVTS) is a $3.3 billion company at a much earlier stage than ON and TXN. The US government recently selected it to develop next-generation 10kV silicon carbide power chips, which are power chips designed to handle 10,000 volts, or ten times more than what most chips can handle.

Electricity is converted several times between the grid and the AI chip, and each step wastes energy as heat… so chips that can handle higher voltages could eliminate steps and make the whole process more efficient. NVTS is not yet profitable, though, and the current valuation is around 45x next year’s sales, which is very rich. This makes NVTS a higher risk bet. But with revenue forecast to hit approximately $500 million by 2030, there is a large potential upside here.

We are in the early innings of the Agent Supernova. As it develops, the pressure to wring more “intelligence per unit of power” will be enormous. The companies above stand to benefit.

Demand for AI compute is exploding. That’s bullish for this stock

Credit: Oselote

Over the past month, we have published a special series of research notes analyzing the health of the AI infrastructure trend… a trend that is so large and so pervasive that the health of the U.S. economy now depends on it.

Thus, we’ve called the AI infrastructure “the world’s most important trend.”

The status of this critical trend has become one of the great sagas of the business and investment world… a source of intense disagreement among industry bulls and bears. It’s a trend whose outcome could have large effects on your portfolio.

Given AI’s enormous promise, large tech firms such as Alphabet (GOOG), Amazon (AMZN), and Microsoft (MSFT) have invested over $1 trillion in AI infrastructure. They are on pace to invest over $700 billion this year alone and more than $3 trillion after that.

Both the scale and the velocity of this investment boom are unprecedented. It is the largest collective investment effort in history.

Big Tech’s historic investment boom has made the entire “AI infrastructure” trend responsible for a large share of America’s GDP growth and stock market returns over the past two years. It has also drawn the skeptical scrutiny of many widely followed investment analysts who claim the trend is a bubble… one that will soon explode and cause tremendous damage to stock prices and the global economy.

If this hugely consequential trend isn’t the most important trend in the stock market, then it is certainly in the top three.

As we’ve detailed many times over the past month, the market is moving in favor of the supporters.

Key AI infrastructure stocks Nvidia (NVDA), Taiwan Semiconductor (TSM), and Lumentum (LITE) are reaching new highs. Plus, the “hyperscalers” such as Amazon (AMZN) and Microsoft (MSFT) are doing so well that the Roundhill Magnificent 7 ETF (MAGS) recently reached an all-time high.

If the market continues to favor the bull side of AI infrastructure, we once again remind you that “neocloud” stocks such as Nebius (NBIS) are almost certain to benefit.

Neocloud businesses own and operate AI data centers. Traditional cloud providers (AWS, Azure, Google Cloud) are generalist platforms built to serve every computing need. Neoclouds are purpose-built to serve AI companies with enormous computing needs.

Big customers like Meta use neocloud data centers so they can train and operate bleeding-edge AI models. Neocloud businesses handle all the logistics of securing, building, and operating AI data centers so AI model builders can focus on building models. In industry speak, neoclouds provide “compute” to big tech.

The neocloud stock group contains players such as Nebius, CoreWeave (CRWV), IREN (IREN), and Applied Digital (APLD). In this group, Nebius almost always gets the highest marks from industry analysts.

Nebius Group is a fast-growing “neocloud” firm. Its biggest customers include Microsoft and Meta. Microsoft signed a five-year agreement with Nebius worth about $17.4 billion, potentially rising to $19.4 billion

This year, Meta expanded its relationship with Nebius, committing $12 billion for compute capacity plus potentially another $15 billion of capacity – a deal worth up to $27 billion.

NVIDIA also invested $2 billion in Nebius and formed a strategic partnership supporting the deployment of more than 5 gigawatts of NVIDIA systems by 2030.

These huge commitments provide Nebius with strong visibility into future demand and help finance its data center expansion. They also help Wall Street forecast extraordinary growth into 2030, with revenue potentially rising over 10X to $23 billion in 2028.

Like virtually every component of the AI infrastructure trend, Nebius enjoyed a big spring rally followed by a summer correction. As you can see in the one-year chart below, the stock has recovered from its lows and is closing in on its all-time high. The bull market in neoclouds appears set to continue.

You don’t own enough of this bull market that has YEARS to run

Credit: Andy

Over the past month, the investment world has been fixated on rising interest rates, the Iran War, and the AI infrastructure trade.

Given all this, it’s been easy to forget that our “Boomer healthcare” megatrend is alive and well, healthcare stocks are in a bull market, and this industry is full of investment opportunities.

As evidence, we point to the world’s largest healthcare stock ETF – the State Street Health Care Select Sector SPDR (XLV) – which is up 38% over the past three years, 19% over the past 12 months, and trading near its all-time high.

XLV owns a “who’s who” of big-time healthcare firms. It holds a diversified basket of drugmakers (Merck, Eli Lily), healthcare tools and services firms (Thermo Fisher, Danaher), medical device firms (Intuitive Surgical, Medtronic), and other assorted components of the healthcare industry.

Constant readers of Money & Megatrends are not surprised to hear such firms are doing well and reaching new highs.

For more than three years, I’ve made “Boomer healthcare” one of my highest conviction long-term investment themes. We don’t know of another investment research publication that has written more bullishly, more often about this booming industry than we have.

Over the past year, we have published more than two dozen pieces on opportunities in drug development, biotechnology, senior living facilities, genomics, cardiology, diagnostics, and more.

Our bullish stance has produced a parade of home runs, with the healthcare industry dominating the stock market’s new highs list over the past year.

Healthcare stocks are generating extraordinary returns because they are benefiting from several megatrends simultaneously…

One is a demographic tsunami. More than 10,000 Americans reach retirement age every day. The U.S. population aged 80 and older is projected to roughly double, from 14.7 million in 2025 to 29.4 million by 2045.

This is the enormous Baby Boom generation entering the phase of life where health care and longevity spending skyrocket. For many boomers, a typical month involves going to see at least one doctor to have something looked at, removed, or treated.

This means many health care businesses are experiencing huge demand now – and will for at least the next decade.

Two is exponential technological progress. Thanks to major advances in genomic sequencing, AI-powered analytics, imaging technology, and preventive treatments, healthcare is becoming much better and more personalized. This is driving strong demand for all kinds of new tests, tools, and treatments.

After all, when a useful and important service you buy gets much better, you typically buy more of it.

This means many healthcare businesses are experiencing huge demand now – and will for at least the next decade. It means boom times ahead for many “ology” businesses, stocks, and careers. Dermatology. Cardiology. Radiology. Oncology. Anesthesiology. Ophthalmology. The list goes on.

Investing in many healthcare businesses over the next decade will be investing with a gale-force tailwind at your back. If you’re a parent and worried about your child getting a job, just point them to the booming healthcare industry.

That’s my bull case. But I care a lot more about what the market thinks of a bull case, a bear case, or any other case than what any one person thinks of it (including me).

You can read a thousand opinions and forecasts related to virtually any industry or asset class. However, there’s only one source of objective truth: Market prices.

Today’s market prices are the sum and current manifestation of all knowledge held by industry insiders, connected investors, government officials, and bankers who quietly control huge swaths of the economy. These people know 50 times as much about their industries of focus as you or I do.

Their knowledge manifests itself through action… and that action that sets market prices. Market prices are not always perfect, but most of the time, they know hell of a lot more than any economist, podcaster, X poster, or investment guru.

As you can see in the three-year chart of XLV below, the people who know… the people who see real-time, proprietary insider data related to new orders, new innovations, new customers, backlogs, returns on invested capital, and free cash flows are enthusiastically supporting the key businesses operating inside the healthcare megatrend. Still bullish!

Market Notes

• Air taxi leader Joby Aviation (JOBY) just hit a new yearly low. It’s now down 70% over the last year.

• Our June 8th recommendation to invest in Eli Lilly (LLY) is performing well. The stock trades up 2% today in a weak broad market.

• The Iran War and its constriction of oil and refined products continues to benefit big U.S. oil refiners. Valero Energy (VLO) and Marathon Petroleum (MPC) reached one-year highs today.

• Data storage and infrastructure leader Hewlett Packard Enterprise (HPE) just hit a new high. It’s now up 30% over the last month.

• The bear market in U.S. housing-related stocks continues: Pool supply giant Pool Corp (POOL) reached a new one-year low today. Home appliance giant Whirlpool (WHR) reached a new one-year low. Landscaping supply giant SiteOne (SITE) reached a new one-year low. Mortgage giant Rocket Companies (RKT) reached a one-year low.

Regards,

Brian Hunt
Editor, Money & Megatrends

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