Episode 228, this episode aired on August 27, 2024
Analyst(s): Daniel Newman, Patrick Moorhead
Document #: SF229DNPM202408
Synopsys reported strong Q3 FY24 earnings, underscoring its critical role in AI chip design. NVIDIA continues to dominate the AI GPU market but faces supply constraints. Broadcom has won two major AI ASIC programs from OpenAI, marking its growing importance in AI hardware. The size of the AI GPU and ASIC market is under debate, with significant growth anticipated. Meanwhile, Microsoft’s Windows Recall feature is set to launch in October after addressing privacy concerns, and a massive job revision highlights potential economic headwinds.
What Are Covered in this Episode:
- Synopsys Q3FY24 Earnings
- NVIDIA Earnings Predictions
- Broadcom Wins 1st & 2nd Generation AI ASIC Programs From OpenAI?
- Debating The Size of The AI GPU & ASIC Market
- Windows Recall Gets A Date
- Massive Downward Job Revision
Access the video link of the August 27, 2024 Six Five episode here.
A Look Into Synopsys Q3 FY24 Earnings
Synopsys, a leader in electronic design automation (EDA) tools and IP, reported solid results for Q3 FY24, showcasing its critical role in the AI-driven semiconductor industry. The company delivered record revenue for the quarter, beating both top and bottom lines. Although its stock saw a slight dip following the earnings announcement due to broader market declines, the key takeaway was Synopsys’ growing influence in the chip design ecosystem, particularly in AI and advanced semiconductor design.
In its earnings call, Synopsys’s leadership emphasized its role in working with major U.S. tech firms. Sassine Gazzi, Synopys’ CEO, referred to significant wins without explicitly naming companies, including a large U.S.-based GPU company adopting its Verdi platform, likely referencing NVIDIA. The Verdi platform significantly cuts down debugging time for semiconductor designs, reducing time-to-market for new AI chips and making it indispensable for critical players in the industry.
Verification and prototyping have also become critical as AI chip complexity increases. Synopsys’ VSO.ai platform delivered time improvements of 2x to 7x in verification speeds for a U.S. GPU company, widely believed to be NVIDIA. Additionally, the company secured a win at a major U.S. hyperscaler for its ZeBu emulation platform, beating competitors like Cadence.
These developments highlight Synopsys’s critical role in supporting the design and production of AI chips. The company’s ability to provide cutting-edge EDA tools positions it as a cornerstone for the future of AI-driven semiconductor innovations.
NVIDIA Earnings Predictions
All eyes are on NVIDIA as it prepares to report its earnings, with expectations running high following its continued dominance in the AI chip market. NVIDIA’s GPUs have become essential for AI training, and the company’s data center business now vastly overshadows its gaming division. Demand for AI chips has surged, particularly from hyperscalers, enterprises, and AI-focused companies like OpenAI.
NVIDIA’s earnings are expected to highlight two key aspects: its ability to meet soaring demand and supply chain constraints. NVIDIA’s dominance in the data center market, driven by AI-related growth, has significantly contributed to its revenue explosion. The tech sector has seen volatility, but NVIDIA continues to power through, with AI chip demand remaining strong.
One concern for investors is whether NVIDIA can keep up with demand as companies across industries rush to adopt AI solutions. The ongoing supply chain pressures could impact NVIDIA’s ability to capitalize fully on this unprecedented demand. The company’s results will likely be closely scrutinized to gauge whether NVIDIA can sustain its leadership in AI hardware amidst growing competition.
The market is also keen to see how NVIDIA’s relationship with key clients like OpenAI and Microsoft evolves, particularly as AI chip development becomes more competitive. NVIDIA’s ability to maintain its technological edge while managing supply constraints will be central to its continued success.
Broadcom Wins 1st & 2nd Generation AI ASIC Programs From OpenAI
Broadcom has made significant inroads in AI hardware by securing the 1st and 2nd generation AI ASIC (Application-Specific Integrated Circuit) programs from OpenAI. This win positions Broadcom as OpenAI’s fourth AI ASIC partner, an essential development in the rapidly evolving AI hardware landscape.
Broadcom’s success in landing these deals underscores the growing trend of AI companies moving beyond traditional GPUs for specific workloads. As the demand for AI infrastructure grows, companies seek specialized chips like ASICs to optimize performance and efficiency. Broadcom’s win indicates its growing role in the AI chip market, leveraging its networking and custom silicon design expertise to secure strategic partnerships.
This development raises several strategic questions for OpenAI, particularly its dependence on NVIDIA for GPU-based infrastructure. With Broadcom onboard as an ASIC supplier, OpenAI may diversify its supply chain to reduce reliance on NVIDIA while optimizing performance for specific AI workloads. Broadcom’s win is a testament to the shifting dynamics in the AI hardware market, where companies are increasingly seeking specialized solutions to stay competitive.
Broadcom’s growing role in AI acceleration, especially in its work with hyperscalers and custom silicon, puts it in a solid position to compete with NVIDIA and other key players in the AI space. The continued expansion of AI applications and the infrastructure needed to support them is expected to drive further demand for Broadcom’s products in the future.
Debating the Size of the AI GPU & ASIC Market
The size of the AI GPU and ASIC markets is a topic of growing debate. According to recent reports, NVIDIA holds approximately 92% of the GPU market share for AI applications, with estimates ranging between 88% to 96%, depending on the source. However, the broader AI chip market expands beyond GPUs as companies look to alternatives like ASICs and XPUs (eXtreme Processing Units) for specific AI tasks.
The AI chip market is growing at an extraordinary pace, with some forecasts predicting a compound annual growth rate (CAGR) of 30% or more. In 2023, the AI GPU market was estimated to be around $36 billion, with projections of it reaching $138 billion by 2028. However, these numbers can vary significantly depending on the market’s scope. Some estimates from industry leaders like AMD’s CEO, Lisa Su, suggest that the total AI GPU and ASIC market could reach $400 billion, reflecting the broader integration of AI across industries.
One challenge in defining the market size is determining how much the AI infrastructure relies on GPUs versus more specialized hardware like ASICs. Companies like Broadcom, Marvell, and Intel are entering the market with AI-specific hardware that could challenge NVIDIA’s dominance, particularly in AI inference workloads. As the market diversifies, tracking how these players carve out market share from NVIDIA and whether the broader AI chip market grows to meet these bullish projections will be necessary.
In addition, the debate extends to the broader AI infrastructure market, including networking, memory, and storage, which are all critical components of AI workloads. As AI becomes more pervasive, demand for these complementary technologies will further drive the growth of the overall AI market.
Windows Recall Gets a Date
Windows Recall, a highly anticipated feature of Microsoft’s AI-driven Windows 11 update, is expected to launch in October. This feature was initially delayed due to security and privacy concerns, as it captures snapshots of applications and data in real time to enable advanced recall and search functions. Recall is designed to leverage AI to enhance productivity by allowing users to quickly retrieve information across multiple applications, from emails to web searches and even text messages.
Recall was initially expected to be a cornerstone feature of AI PCs. Still, privacy concerns prompted Microsoft to limit its release to the Windows Insider Program, initially making it an opt-in feature. This delay allowed Microsoft to address security concerns, with the added safeguard that Recall would only function if Windows Hello (Microsoft’s biometric authentication system) is enabled.
This development is significant for AI PC manufacturers, as Recall was seen as a potential productivity game-changer. For professionals handling vast amounts of data and communication, quickly recalling relevant information without manually searching through various platforms could drive significant efficiency gains.
Looking ahead, the success of Recall will depend on how well Microsoft addresses privacy concerns and whether users will adopt it on a broad scale. The ability to tailor its usage to specific applications will likely determine its appeal, especially among professionals prioritizing data security.
Massive Downward Job Revision
A massive revision in U.S. job market data has revealed that the economy may be weaker than previously thought. A downward revision of 818,000 jobs—the largest in over 20 years—casts doubt on the narrative of a robust economic recovery. This revision came at a critical time, as high inflation and rising interest rates have already created headwinds for businesses and consumers.
The tech industry has been particularly affected, with companies like Cisco and Dell executing significant layoffs. This correction in job market data mirrors what has been happening in Silicon Valley, where tech layoffs have reduced the workforce to below 2019. The broader economic context raises concerns for industries that rely on high capital expenditures, such as AI and tech infrastructure, where tightening credit conditions and reduced consumer spending could impact future growth.
For investors and vendors, this job revision underscores the need to be cautious about the broader economic outlook. While sectors like AI continue to experience rapid growth, the broader economic environment could create challenges for companies looking to scale their operations. Tech companies, in particular, may face tighter budgets and increased scrutiny of their spending, especially as they continue to lay off workers in the face of slower growth.
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Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
Synopsys Hits Record Q3 2024 Revenue on High Semiconductor, AI Demand
NVIDIA Q2FY25 Earnings with Special Guest Dan Ives
Innovative Mainframe Solutions: A Deep Dive into Broadcom’s Initiatives
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Six Five Media is a joint venture of two top-ranked analyst firms, The Futurum Group and Moor Insights & Strategy. Six Five provides high-quality, insightful, and credible analyses of the tech landscape in video format. Our team of analysts sit with the world’s most respected leaders and professionals to discuss all things technology with a focus on digital transformation and innovation.
