Wealth Outlook 2024 - Slow then grow

56 Wealth Outlook 2024 | Opportunistic Our top 10 high conviction potential opportunities 1. Semiconductor equipment makers In the past year, two major dynamic shifts took hold across our economy: 1) technical leaps in artificial intelligence efficacy and an associated 2) infrastructure spend in the sector from artificial intelligence (AI) service providers.² ² Commerce department data shows US manufacturing facility construction spending has risen at a record 66% pace over the past year largely for semiconductor and battery supply chains. As we discuss elsewhere (see How generative AI might reshape every sector and AI-propelled digitization in 2024 , starting on page 77 ), we believe AI could do more to boost economic output and labor productivity than any technology the global economy has seen in decades. Competition is coming into the field of AI chip design. Some of the generative AI products might be a commercial failure or competitive laggard. But all the work requires advanced semiconductor equipment . As FIGURE 1 shows, the market cap of the top 10 semiconductor equipment makers has suddenly fallen behind the surging market cap of the semiconductor producers. In essence, there is less optimism for the “picks and shovels” than for the “silicon gold miners.” That makes little sense to us given that the barriers to entry for the makers of these sophisticated machines and materials tend to be at least as high as for the advanced chipmakers themselves. FIGURE 1 Market capitalization of semiconductor designers versus equipment and fabricators Total market cap (USDbn) Leading semi equipment and fabs Leading semi designers 3000 2000 1000 2000 2004 2008 2012 2016 2020 2024 0 Source: Haver Analytics as of November 3, 2023