Cloud and Machine Learning Sectors Continue to Display High Growth
The authors are analysts of NH Investment & Securities. They can be reached at hwdoh@nhqv.com and jiyong.im@nhqv.com, respectively. -- Ed.
During their 1Q22 earnings calls, big tech firms in the US announced that they would scale up 2022 investment in AI and cloud services. As a result, demand for server semiconductors should continue to grow.
Cloud and machine learning sectors continue to display high growth
Looking at the 1Q21 results of US hyperscalers (Microsoft, Amazon, Meta, IBM), sectors closely tied to server demand, such as cloud and machine learning, continue to show high growth, while sectors related to the economy, such as online retail (Amazon) and advertising (Google), fell short of expectations. During their 1Q22 earnings calls, a number of firms announced plans to expand cloud and AI-related investment in 2022.
Amazon’s AWS (cloud) sales amounted to US$18bn (+37% y-y) in 1Q22, while its total capex came to US$15bn. Of note, Amazon had not released earnings guidance for its cloud business. The company has invested US$61bn over the past 12 months, breaking down as 40% on AWS, 30% on fulfillment and warehouse, and 25% on shipping. Amazon plans to increase its investment in 2022, with greater focus on AWS and reduced focus on retail-related fulfillment and transportation (compared to 2021).
Semicon demand to rise as cloud investment grows
Microsoft Intelligent Cloud’s 1Q22 sales reached US$19.1bn (+26% y-y), with Azure (cloud platform) sales rallying 46% y-y. Microsoft’s capex came to US$6.3bn in 1Q22, and it plans to boost this figure in 2Q22 as cloud demand grows. Meta executed capex of US$5.5bn in 1Q22, and its 2022 capex guidance is set at US$29bn~34bn. The firm intends to expand investment in AI infrastructure and reduce investment in non-core sectors. Meanwhile, Google Cloud’s 1Q22 sales amounted to US$5.8bn (+44% y-y). As cloud sales are expected to rise going forward, led by data analytics services, the company plans to aggressively ramp up related investment. We believe that Google Cloud’s capex will climb y-y in 2022.
In 2021, cloud-related investment slowed as business customers cut IT spending due to the pandemic. Since the beginning of 2022, with the Covid-19 crisis showing signs of ending, data centers investment has started to grow. Currently, server products are the main driver of semicon demand, with demand for PCs and smartphones remaining sluggish. In 2H22, US companies’ cloud-related investment should continue to climb, and memory supply growth is expected to slow, leading to an improvement in memory supply-demand conditions.