Semiconductor Industry: Investing in US Hyperscaler Data Centers to Boost Semiconductor Demand

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The authors are analysts from NH Investment & Securities. They can be contacted at [email protected] and [email protected], respectively. — Ed.

During their 1Q22 earnings calls, major US tech companies announced that they would increase their investments in 2022 in AI and cloud services. As a result, demand for server semiconductors is expected to continue to grow.

Cloud and machine learning sectors continue to show strong growth

Looking at the 1Q21 results of US hyperscalers (Microsoft, Amazon, Meta, IBM), sectors closely tied to server demand, such as cloud and machine learning, continue to show strong growth, while Economy-related sectors, such as online retail (Amazon) and advertising (Google), fell short of expectations. During their 1Q22 earnings calls, a number of companies announced plans to expand cloud and AI-related investments in 2022.

Amazon’s AWS (cloud) sales were US$18 billion (+37% YoY) in 1Q22, while its total investments were US$15 billion. It should be noted that Amazon has not released earnings forecasts for its cloud business. The company has invested $61 billion over the past 12 months, split 40% on AWS, 30% on fulfillment and warehouse, and 25% on shipping. Amazon plans to increase its investments in 2022, focusing more on AWS and focusing less on retail-related fulfillment and transport (compared to 2021).

Demand for semicon will increase as cloud investment grows

Microsoft Intelligent Cloud sales in 1Q22 reached US$19.1 billion (+26% YoY), with Azure (cloud platform) sales growing 46% YoY. Microsoft’s capital expenditures were $6.3 billion in 1Q22, and Microsoft expects to increase this figure in 2Q22 as cloud demand grows. Meta executed investments of $5.5 billion in 1Q22, and its investment forecast for 2022 is set at $29 billion~$34 billion. The company intends to increase investment in AI infrastructure and reduce investment in non-core sectors. Meanwhile, Google Cloud’s 1Q22 sales were US$5.8 billion (+44% YoY). While cloud sales are expected to increase in the future, driven by data analytics services, the company plans to aggressively increase related investments. We expect Google Cloud’s capital expenditure to increase in 2022.

In 2021, cloud-related investments slowed as business customers reduced their IT spending due to the pandemic. Since the beginning of 2022, when the Covid-19 crisis shows signs of ending, investments in data centers have started to grow. Currently, server products are the main driver of demand for semiconductors, with demand for PCs and smartphones remaining sluggish. In 2H22, cloud-related US business investment is expected to continue to climb, and memory supply growth is expected to slow, leading to improved memory supply-demand conditions.

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