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According to Jensen H. it is boom time (and then some) in the world of AI and data centres.
https://www.theguardian.com/technology/article/2024/may/22/nvidia-quarterly-earnings
At Nvidia demand exceeds supply and even working flat out the company can't ship enough product.
Furthermore AI/AI accelerators has begat accelerated hardware / infrastructure redesign. Nvidia themselves say they are on a 'one year rhythm' where in a relatively short timescale an existing generation of products is blown out of the water by it's successor (must make timing a purchase / accounting for depreciation difficult).
AWE are definitely in the right place at the right time with the right toolbox and focus. The big question is can they muscle in on some of the action / claim some of the pickings? TBD. The CMD on June 4th will be interesting.
If NVIDIA results are good again tomorrow yet Alphawave fails to have a related bounce along with most other AI related shares afterwards, then i dont know what will make the shares rise in the future
Trades
11:48:21 132.60 13,593 Sell* 18.02k O
11:46:33 132.25 140,000 Sell* 185.15k O
11:45:37 132.25 140,000 Sell* 185.15k O
11:45:16 132.25 272,404 Sell* 360.25k O
11:42:42 131.94 120,000 Sell* 158.33k O
11:39:17 131.94 135,000 Sell* 178.12k O
Shorter video
https://www.youtube.com/watch?v=b5A8w_IgBE0
Re my point that the calibre of modern politicians has imploded, I note that the same trend is observed on the far side of the pond.
https://www.youtube.com/watch?v=ZfgJl81p0nM
It would be funny if it was not so tragic. How did we move from the authors of the constitution to this.
An excellent discussion on energy policy (USA) - worth downloading and listening to.
https://www.financialsense.com/podcast/20900/mark-mills-policy-vs-reality-and-coming-energy-storm
There is some relevance to AWE in that large demands on energy in the future will come from AI and data centres. Anything that can be done to mitigate such consumption will be in demand.
Needless to say anyone with wit/competence/ability has long since abandoned politics to those who can squabble on twitterface. I very much doubt if elected officials anywhere with degrees in maths/science/engineering number 1 or 2% of that population - if even that.
In the context of the evolving business
- I doubt if the out going NEDs were adding much value.
- I don't doubt that they could be replaced with better NEDs (ie directors with more relevant domain knowledge)
So, as long as they are indeed replaced by 'Directors with relevant Board experience in AI and data centres' the development seems like a good one.
With an outcome yet to be determined, AWE have ditched all products, product lines, markets etc that are a distraction from where they think they are uniquely placed to capitalise on the big growth opportunity of the age - AI and datac entres. It will be interesting to see how things unfold. I am already looking forward to the Capital Markets Day of June 4th.
You cannot really equate telecoms or general IT business with the business of chip making - especially the niche business of high end silicon IP and connectivity chips for datacentres and AI infrastructure. They are different beasts. They already have Michelle Senecal de Fonesca with telecoms background, and David Reeder has corporate finance experience in the semiconductor sector who has held executive positions at Broadcom and Texas Instruments.
Bringing in a couple of people who specifically have involvement with datacentres and the development of AI infrastructure, and are sufficiently independent of Alphawave, is what the company now needs at this juncture.
I think this one is just good housekeeping, albeit it could have been phased in over 2 AGMs so that people don't freak out (which they have).
More fundamental is whether they can continue to invest what they need to in the face of larger and better capitalised industry giants. It's also become clearer that whilst the UK may have been the right market to IPO, it isn't now the right market for them to be listed. Credo and Astera illustrate that. I think that Alphawave is better positioned business, but the process of reinvention since IPO and the lack of a longer-term investor perspective has punished them in the UK. I take comfort from the fact that management and board still hold the vast majority of the shares, so they have more to gain or lose than any of us.
I think you've described it perfectly. Rosalind, Victoria and Susan all have telecom backgrounds. Telecom used to be a key market for Alphawave (and I think they still do a bit there), but the vast majority of the business and growth is not in Telecom. Paul is in the silicon materials market, which is not high speed communications (it's one of many end markets for silicon on insulator wafers). I can understand why they want the credibility of Susan and Paul for the IPO, given listed company experience, but it's not relevant now. They need industry folks in data centres and networking.
I think's important to stick to the facts and let others draw conclusions. In my opinion, if you are spending £300k+ a year on those directors, you want people who, at the current stage of the business, can give end market credibility and open doors.
The ley question is whether they can bag some big AI/Datacentre deals. If they can, it flies; if they can't, it dies.
Susan Butterworth... Background Three COO
Rosalind Singleton.. Background Extensive IT Corporate and telecomms
Paul Boudre.. Background CEO High speed communications
Victoria Hull... Background.... Corporate Solicitor and blue chip telecomms.
These are NOT peripheral type directors who know little of the industry and I find the AWE announcement quite insulting to Susan, Rosalind, Paul and Victoria.
In my opinion I suspect they don't want to continue in their roles for professional reputation reasons.
I'm sure BluePhallus will come up with a reason why this is a good move.
The iceburg is now in sight and they crew are hitting the lifeboats.
Good luck to any passengers on this Titanic.
Cheers
Barcap
It makes perfect sense to change out independent non-executives if they don't have the appropriate background experience in the specialty sector of data centres / AI. They still have three non-execs and will be adding at least two more with appropriate background experience to ensure they have more than half the directors serving as independents.
Now that they have almost completed the acquisition consolidation phase and are moving into the rapid scale-up of their business, it is vital to have independents with a relevant background appropriate to the datacentre/AI sphere.
Also it is actually quite common for companies to change out independent directors and limit their tenure.
A bizarre notification. They're basically saying half the BOD are no good and need replacing. (Almost) unheard of...
Where's Bar cap when you need him? I think a good clear out is needed though this probably doesn't go far enough. I think the hope here is a takeover. The IP is probably pretty valuable, it's inexpensive after all the screw ups, and competitors might think that putting their own much more competent management in place could yield big gains.
Honestly... how does that work WITHOUT insider knowledge?
In Germany there is a social trader who sells his entire position in his Wikifolio-Portfolio 'Attraktive Nebenwerte weltweit' an hour before the big -40% crash. A few days later, he picked up the stock again at its absolute low and is now up 12% on the position.
A 40% loss was prevented within a very short time and a 12% return was achieved on top of that. This is almost impossible.
Https://www.zdnet.com/article/generative-ai-spending-to-reach-143-billion-in-2027-according-to-idc/
"The forecasted growth of generative AI investments is more than twice the growth rate in overall AI spending and 13 times greater than the CAGR for worldwide IT spending over the same period, according to IDC."
It would be nice if it was accurate and AWE could capture a % of the market.
From a TSMC point of view, their main partners in various areas
https://www.tsmc.com/english/dedicatedFoundry/oip/3dfabric_alliance
Thanks BlueRaphus, your insights have always been very helpful.
I agree with you that Tesla will spend a lot of money on AI infrastructure no matter whether they could eventually reach AGI or not. The stake is just way too high to miss the opportunity and let someone else own it exclusively (which musk hates)
Microsoft mentioned in their earning call yesterday that their capex last quarter reached $14b, next quarter at 16b, and guided “significant higher capex in 2025”. That’s a lot of money to be spent on GPU, ASIC, and networking equipments, maybe reaching 65b annual runrate . Google and META guided slightly lower but similar capex level too. It almost seemed that in order to compete in the “AI league”, one would at least spend $10b per quarter just to qualify to play. Most importantly, we haven’t heard from Amazon and Apple (the one with the deepest pocket) about their capex plan yet. The TAM might be even bigger than we initially thought.
This is perhaps a once in a lifetime tailwind for companies like Alphawave to thrive. So from this lens I can understand a little bit why the management sounded "I don't get out of bed for less than $10,000 a day" :) but I agree with what you said, the competition is always fierce. And business opportunities don't translate to financial success so easily. Execution is key and we might need to wait a bit longer to see the results.
As for the 3nm IP, I just checked and I think you were right - cadence has them too and so does Synopsys. I got the impression that AWE is the only supplier to Alchip because my industry friend told me at the time the only other comparable UCIe IPs was from GUC, which is a competitor of Alchip so they likely do not collaborate.
He also told me that AWE’s D2D PHY and controller is the best in class, in terms of speed, stability, energy efficiency etc. Maybe even better than the designs from Broadcom and Marvell(Inphi), who design custom chips for Google and Microsoft respectively.
Rz105, many thanks for your insights. They are appreciated.
I've known for some time now the identity of the hyperscaler customer for which AWE are developing the connectivity products as I've heard them mentioned in several podcasts.
I 'm crazy enough to have attempted a revenue model projection and for 2024, it assumes about $5 million for the connectivity products. That's probably ultra conservative. Certainly the 1st generation products were qualified last year and are now in production with first deliveries later this year. Listening to the Q&As of recent webcasts hinted that some of the 2023 R&D spend is for the second generation products.
I think you're on the money with Tesla being the automotive customer. I really can't see who else it could be. I know Elon Musk was emphasising only a couple of days ago that Tesla are not just an automotive EV company and are much more about 'autonomy'. So whether, Elon's project is destined for success or failure, I couldn't say, but one thing is for sure, a lot of money is going to be invested into this.
Alphawave are throwing a lot of money into R&D, not only the $78.2 million they have expensed but also the $53.3 million they have opted to capitalised, meaning effectively 41% of this year's annual revenue value has been spent on R&D. I am a little bit nervous about the level of R&D spend here. This they have to do, to get the products ready for market, but leaves me questioning how much more is required before they can scale back on the R&D investment. If it continues at the present rate, a cash placing round might have to be considered, though I hope not. Alphawave's competitors incidentally are also committing similar amounts to development percentage wise. Marvell spent 34.4% of their revenue on it and Credo 41.7%, Rambus 34%. Both Marvell and Credo reported losses. Rambus would have done were it not for the fact they sold off the PHY IP to Cadence. Credo did a cash placing last year and it had zero impact on the stock price!
I'm not 100% sure that Alphawave are the only one's with connectivity IP on TSMC's 3nm. I know that Cadence has too.
I really don't think the revenue ramp up need be in doubt. In about 36 months from now they should be able to report revenue somewhere in the order of $700 million to $1 billion with revenue split roughly equally between the three main streams: IP licensing & royalties, custom silicon and connectivity products. As long as they are achieving the high margins they claim and the development demands can drop off a bit then there shouldn't be an issue with profitability.
Thanks rz105 for excellent insights!
We could also workout this "$500m of potential lifetime silicon revenue based on 2023 design wins"
A typical AI ASIC costs $1500 to make by TSMC.
HBM is a must and that costs about $2000.
Packaging (Cowos) costs somewhere like $500-1000.
Add the costs up you get $4000-4500 per chip. Alphawave adds 50% gross margin on top, the end chip would end up selling at $8-10k. Yes that's much cheaper than Nvidia's H100 at $30k which is why these hyperscalers are building their own
$500m / $8-10k = 50,000 - 60,000 chips.
Latest large language models such as GPT3.5/4 were typically trained on computing cluster that contain about 10,000-50,000 GPU/ASICs. So the above calculation looks about right.
An educated guess is that this customer is AWS.
Hxulcolrdoh, I am equally looking forward to the optical product roll-out, they are expensive , e.g. 1.6G optic module costs $1-2k and coherent ones cost even more, and they typically ramps in high volume within cloud service provider (1000s to 10,000s of them). I know from industry insiders that this "$300m non-binding contract" is with Amazon. But I don't know how many they will ship to them this years, likely in small volume so that Amazon can test the products
Now I am more interested to see how their custom silicon line of business grows. For a couple of consecutive quarters now, the management's emphasis had been their 3-5nm IP design wins and custom silicon wins. Q1 trading update mentioned "1 IP win for a leading North American Automative company". As far as we know there's only one such company building custom chip in 5nm domain, and it's Tesla, and the chip is dojo2 chip for FSD. If we reached a point where Alphawave's management is able to share this name to the general public, I think that's gonna be pretty good news, because it confirms AWE's technical leadership.
I have some info from the supply chain that AWS's Inferentia(3nm), Trainium(3nm) are all done in collaboration with Alchip, a Taiwanese bank-end chip design company. Alchip doesn't have IPs, so it's almost certain that Alchip acquired those IPs from AWE for Amazon. Why? Because there's no IP vendor other than AWE that has connectivity IPs in 3nm. This TSMC process node is unimaginably expensive to develop anything, which explains AWE's high R&D costs this year.
As for Tesla, I know their Dojo 1(7nm) is with Alchip, and their Dojo 2(5nm) is with TSMC Direct. Oh by the way, Amazon's latest Graviton 3 chips, Google's tensor(3nm) are also developed with TSMC Direct. TSMC Direct is an alliance of multiple chip design companies that include Alphawave. You can find more info here:
https://www.tsmc.com/english/dedicatedFoundry/design-center-alliance
One interesting thing I note from the list of companies on that website, only Alphawave has 2.5D Cowos or 3D chiplet design capabilities (see the tick on TSMC 3DFabric column). That technology is an absolute requirement if you want to build an AI chip, using which you bind the computing unit with High-bandwith-memory unit together. Therefore, I highly suspect Tesla's Dojo2 (which is an AI chip), Google's Tensor, AWS's Graviton could at some point be developed with Alphawave's OpenFive unit, be it logic design, physical implementation, or the shipping of actual end-product. I remember Tony the CEO said they are working with "all hyperscalers" in the US, so I wouldn't be surprised Alphawave is involved in these high profile ASIC projects.
Frustrating as it is to have a lack of FINANCIAL visibility on future product sales for Connectivity Silicon IP / Custom Silicon / Connectivity Products, on the ENGINEERING front AWE do march relentlessly on e.g.
https://www.thetecharena.net/content/memcon24/alphawavesemi
Fingers crossed the "build it and they will come" approach will bear fruit.
The company does throw out a few tantalising teasers e.g.
- They say they see "$500m potential lifetime silicon revenue based on 2023 design wins". Presumably as time goes the increasing number of design wins results in additional and increasing future revenues.
- At the time they acquired Banias they said "Alphawave has negotiated a non-binding, multi-year purchasing framework with a leading North American hyperscaler that proposes a multi-year roadmap for Alphawave to develop and sell a portfolio of optical products and DSPs, including coherent DSP technology from Banias Labs, with sales potentially ramping to over US$300 million". The production line for the Banias related content is expected to start rolling in H2 2024.
On the one hand the teasers do not lead themselves to any form of modeling ( over what timescales are products delivered ? are sales front end loaded ? back end loaded ? evenly spread ? ).
On the other it is clear that AWE are serious players in a burgeoning market.
See March 1st posting... I eluded to maybe the best option for you. Ah well, we've all been there.
Unfortunately, too much loss for me to bail out now. Certain people have always warned about this equity but.....we live and learn. Good luck 👍
Well i've been away for a few days with no mobile signal and have come back to my Alphawave investment having gone from 70% up to 1% down .
I am kicking myself now for not getting out in the green when I had the chance.
I dont know about you guys but i dont want my capital tied up here for 2 or 3 more years before things get better, so I'm getting out now at a very small loss whilst I still can