BofA’s Hartnett says concentrated U.S. stock returns are likely to persist
Friday, February 7, 2025 - Bernstein analysts have maintained a positive stance on Asia Tech Hardware AI companies amid recent developments in the industry. They have addressed concerns regarding the DeepSeek technology and its implications, tariffs, and supply chain dynamics, emphasizing that the panic around DeepSeek is unwarranted and that advancements in the field are expected to encourage wider AI adoption.
DeepSeek’s advancements in AI efficiency have not caught the sector off-guard, as companies have been enhancing AI models through hardware and software since 2022. The analysts noted the Jevons paradox, where increased GPU energy efficiency has led to a surge in computation and power demand. They anticipate that the reduced costs of AI training and inference will spur mass AI adoption, setting the stage for Advanced General Intelligence (AGI).
The new tariffs announced by President Trump on February 1, 2025, have prompted a reassessment of the potential impact on the companies covered. Quanta’s small involvement in Mexico through its auto business and its new PC site in Vietnam are expected to bolster its position in the MacBook market. Delta has lessened its manufacturing reliance on China to approximately 60%, but the new tariffs on Mexico could affect U.S. electric vehicle demand, a significant market for the company.
For Delta, which remains a top pick for Bernstein this year, analysts forecast a quarter-over-quarter gross margin decline in Q4 2024 but stabilization in Q1 2025. They anticipate significant year-over-year operating margin growth in Q1 2025 due to operating leverage. Delta’s earnings focus areas include AI server power, liquid cooling, automation and EV recovery, and tariff consequences.
Unimicron is expected to secure a 20% market share by mid-2025, with earnings per share (EPS) projected to more than double this year and continue growing into 2026. Despite a delayed gross margin recovery due to yield improvements and HDI line conversions, the stock is considered undervalued with a forward price-to-earnings (P/E) ratio of 10x.
Chroma is set to face a variable revenue pattern, with potential dips in the first half of 2025 as demand for SLT rush orders decreases. However, the upcoming GTC event in mid-March is seen as a near-term catalyst for the stock. Bernstein has maintained its revenue estimates for Chroma, despite concerns about GPU testing times and market share at TSMC.
Quanta’s consensus estimates for total GB200 shipments are aligning with Bernstein’s predictions. Nevertheless, the effects of lower gross margins and increased working capital needs for AI servers on earnings growth remain to be seen. Despite more reasonable valuations at 13x, they are based on inflated consensus EPS, according to Bernstein.
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