Nvidia’s dominance at risk?
What is more certain is that the AI arms race between the US and China has escalated. DeepSeek shows that it does not require cutting-edge US-produced hardware to make a model as what was previously perceived by many countries. DeepSeek has also signified China’s ability to make such efficient models without relying on these complex technologies held by the US.
For now, DBS is keeping its bullish view on Nvidia Corp, the leading AI chip maker. However, the US-based company’s future as the dominant chip maker is uncertain as emerging smaller AI models might shift towards cheaper chips, warns DBS.
If demand for Nvidia’s cutting-edge chips softens, it could face increased inventory costs which would then erode the profit margins of its data centre segments, which account for 90% of its revenue.
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DBS is also observing a shift by the big users, the hyperscalers investing more in proprietary chips tailored to their own specific needs. This might erode Nvidia’s market share.
Other chip companies the likes of Broadcom and Marvell are also providing fit-for-purpose custom silicon AI chips that yield more efficient outcomes which are alternatives to Nvidia’s GPUs.
Nvidia commands an “unassailable lead” in hardware, software and ecosystem entrenchment but other players particularly Advanced Micro Devices (AMD) are producing lower quality but lower cost chips requiring less power. Customers happy to use AMD chips include Meta Platforms, OpenAI and Microsoft Corp, notes DBS.
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As such, DBS has included AMD in its list of AI beneficiaries due to this thriving data centre GPU sector, which, according to consensus estimates, is seen to grow at a CAGR of 56% between FY2024-FY2028. Based on this growth rate, this segment will account for 56% of AMD’s revenue, from 20% in FY2024.
The bank put forward a US$155 ($207.99) target price (TP) for AMD.
China’s device makers
Amid the US-China trade war, China’s AI device penetration has been restricted as a result of US chip export bans. The emergence of DeepSeek has helped narrow the development gap between AI devices and LLMs.
After leading smartphone maker Huawei announced its intention to integrate DeepSeek, other Chinese smartphone brands such as Honor, Oppo, Nubia and Meizu along with device makers Lenovo are expected to follow.
DBS favours Chinese AI hardware and electronics manufacturers Xiaomi, BYD Electronics (BYDE) and Lenovo for their promising outlook. For example, Xiaomi is known to be investing in large-scale initiatives like the development of its own GPU cluster to drive innovation of its smart assistant, Super Xiao Ai.
The integration of DeepSeek is also seen by DBS to benefit BYDE, the smartphone chassis provider to Huawei, as it will boost smartphone sales which will bring about specification upgrades in chassis and structural components.
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Lenovo is also in a good position to capitalise its 2025 product replacement cycle where DeepSeek AI will be integrated into Lenovo’s AI assistant “Xiaotian”.
DBS’ target prices for Xiaomi, BYDE and Lenovo are HK$52.0 ($8.97), HK$65.0 and HK$18.4 respectively.
DBS also mentioned Alibaba Group Holding. Besides its better known ecommerce platforms, Alibaba runs a significant cloud computing business as well, which will presumably enjoy rising demand from the wider adoption of AI. The recent tie-up with Apple is another plus point, while Alibaba’s progress in monetising Taobao and Tmall, makes it poised to enjoy a “strong” turnaround in its earnings.
DBS has a TP of HK$150/US$151 for Alibaba.
AI beneficiaries: Foundries
Similar to the trend across higher cost and lower cost AI models, the demand for ultra-high end chips which use leading-edge nodes are still in demand but this could change if there is an industry wide shift towards cheaper, less advanced chips.
China’s push for self-sufficiency of about 80% domestic production by 2030 will fuel the demand for the less advanced chips which use mature nodes, especially from domestic manufacturers like Semiconductor Manufacturing International Corporation (SMIC) as China strives to build upon their success from the innovation of DeepSeek, says DBS.
The performance of Nvidia’s H100 AI GPU which powers the DeepSeek R-1 LLM for example, is 60% powered by Huawei’s Ascend 910C AI GPU, which utilises mature nodes from China’s SMIC, which acts as the sole local producer in China of the 7nm chips used in the 910C AI GPU, says DBS.
However, the biggest player in the chip-making industry, Taiwan Semiconductor Manufacturing Company (TSMC) still holds a dominant market position for now as the main manufacturer for Nvidia. This dominance is further bolstered by their collaboration with Open AI which utilises Nvidia’s chips and is working with TSMC to develop proprietary chips.
DBS puts TSMC as one of its stock picks with a ‘buy’ call at a TP of US$223.
AI beneficiaries: Data centres
Data centres also stand to benefit from this shift in capex towards inferencing models.
“The inferencing market presents a significantly larger and more diverse opportunity than the training market, creating a wider range of potential applications and business models,” DBS says in their report.
The benefit is again most likely looking to favour China given the massive investments in inferencing applications along with an already flourishing data centre demand which was 80% driven by AI model training before DeepSeek emerged.
DBS shortlisted GDS Holdings and VNET Group among its picks among data centre plays.
According to DBS, GDS has shown great potential in its strong overseas expansion capabilities across Southeast Asia with data centres often reaching full capacity within a year while VNET has shown a promising wholesale business transformation, with 90% of their orders in 9M2024 driven by AI demand.
DBS maintains its ‘buy’ call for both VNET and GDS with TPs of US$14 and US$54/HK$52 respectively.
