What happened
Shares of Amkor Technology(NASDAQ: AMKR) rose 14.6% this week, according to data from S&P Global Market Intelligence.
The outsourced assembly and test company (OSAT) to the semiconductor industry posted big gains, as rumors swirled that artificial intelligence (AI) chip star Nvidia(NASDAQ: NVDA) was helping or collaborating with Amkor on advanced packaging technology for AI chips.
Any company that is mentioned in the same breath as Nvidia is bound to get some interest these days, and Amkor was no different, with the stock rising more than 8% on Tuesday, the day these rumors were published in Taiwan technology publication Digitimes.
So what
On Tuesday, Digitimes published a story entitled, "Nvidia rumored to secretly aid Amkor to support AI advanced packaging," with details unclear about specifics as to how Nvidia may be collaborating with Amkor. However, it would likely be a technology and financial partnership, if the rumors are true.
Why would Nvidia rumors circle on Amkor? Well, for those who have been following the burgeoning AI chip wars, you know that much of the technological heft of these chips is determined by how the various parts of the accelerator system are packaged together with new advanced packaging techniques. For instance, Advanced Micro Devices' new MI300 chip is composed of 13 different "chiplets" including CPU and GPU engines, application-specific chips (ASICs), high-bandwidth memory, and interposers to direct traffic through the system. Meanwhile, Nvidia has its own accelerator super-chips, such as the Grace Hopper and others, entering the market.
Demand for AI-specific accelerators has shot up in recent months beyond expectations, and according to TrendForce, this has caused a 50% increase in demand for chip-on-wafer-on-substrate (CoWoS) advanced packaging for AI chips. Although leading chip fab Taiwan Semiconductor Manufacturing currently has the preferred CoWoS solution for AI server chips, it appears demand is outstripping its capacity, even with TSMC's new packaging fab recently coming online.
Therefore, it wouldn't be surprising to see AI designers like Nvidia and AMD look for other secondary sources outside of TSMC for their advanced packaging needs. And unlike TSMC, Amkor is focused on packaging only, not front-end semiconductor manufacturing as well, as TSMC is.
Now what
Despite this week's run, Amkor may still be worth a look, as it only trades around 11 times earnings, making it a value play on the AI industry. In addition to potential AI chips, Amkor has also recently touted its packaging capabilities for electric vehicles, which is another megatrend to watch.
However, Amkor still generates nearly half its revenue from smartphones and tablets, and just 16% from high-performance computing. Since consumer electronics are still experiencing awful demand right now, Amkor's overall growth might not impress very much in the near term.
However, if Amkor can gain a foothold in the AI packaging industry with a close tie to Nvidia, that could make for a very cheap stock, should AI computing begin to make up more and more of its business. Amkor is a cheap way to play the AI and electrification trends, and a stock to watch for tech investors.
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Billy Duberstein has positions in Taiwan Semiconductor Manufacturing. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
