Major American technology companies like Nvidia, Microsoft, and Alphabet have reaped the rewards of the artificial intelligence (AI) trend in global markets over the past year. However, it's not just the big players that stand to benefit; smaller firms within the AI supply chain also have significant potential. Bank of America (BofA) stated in a note on March 15th that the AI market has been experiencing rapid growth since the second half of 2023, with multiple AI solutions emerging. Most chips rely on Taiwan Semiconductor Manufacturing Company (TSMC) for production, while chip and integrated circuit designs are sourced globally or from Taiwan, with some components coming from Greater China, according to BofA. The scarcity of AI/computing suppliers contributes to the higher value-added and bargaining power, particularly for expensive AI products, BofA analysts explained. The bank identified various parts of the supply chain that could benefit from AI, and highlighted its top stocks in each category. Server Original Design Manufacturers: Global companies have collaborated with Taiwanese manufacturers on highly customized projects, such as AI graphics processing units, noted the bank. Here are BofA's top choices among these manufacturers or suppliers: - Quanta: The investment bank considers Quanta the top original design manufacturer due to its diversified client base. It has been working with Google for more than a decade, thanks to its ability to produce highly customized server designs. - Wistron: BofA identified Wistron as a major supplier of graphics processing unit baseboards. It expects the AI server GPU baseboard business to account for 3% to 6% of Wistron's total sales in 2024 and 2025, up from 1% in 2023, due to the increasing demand for AI server applications and GPU supply. - Foxconn Industrial Internet: The bank highlighted Foxconn Industrial Internet as a key partner for Microsoft and Nvidia through its subsidiary, Ingrasys.

It also mentioned that Foxconn Industrial Internet has been supporting Microsoft's OpenAI initiative for several years. Hardware Tech: Hardware tech, such as printed circuit boards, plays a vital role in the upstream parts of the AI server supply chain. BofA stated that these materials or components are always in demand. Here are the bank's top picks in this sector: - Unimicron and NYPCB lead in terms of technology and product development related to AI and high-performance computing. However, Unimicron has demonstrated faster growth in AI server-related revenue, with a proven track record in producing printed circuit boards for Nvidia. Semiconductors: As chip design becomes more complex and expensive, BofA found a growing reliance on companies with a solid track record in designing customized chips for AI applications. Trustworthy intellectual property (IP) and design service providers are crucial in the AI era, as the overall research and development investment becomes costlier and chip designers shy away from the risk of failure, according to BofA analysts. Against this backdrop, the bank named the following Taiwanese stocks as key beneficiaries: - Alchip and eMemory as leaders in IP and design service providers. - MediaTek, a prominent fabless company in Asia, which indirectly benefits from AI server trends. BofA sees strong upside potential for MediaTek as it expands its customized chips to hyperscalers, and notes that its partnership with Nvidia in automotive AI further widens its AI opportunities. In summary, both big tech companies and smaller firms in the global AI supply chain can profit from the AI market boom. Bank of America identified specific players in the supply chain across various categories that stand to benefit from the growing AI industry.