AI providing horsepower for new wave of innovation

Chris Conway: Hello and welcome to Livewire Markets. My name is Chris Conway. On today's episode of The Pitch, we are discussing semiconductors and the impact that AI is having in that space. To do that, I am joined by an investment strategist from Global X, Billy Leung. Billy, welcome to Livewire.

Billy Leung: Thank you.

Chris Conway: We're here to talk about the impact of AI, particularly on the semiconductor space. What exactly is going on in that area at the moment?

Billy Leung: In terms of the semiconductor space, it's an old sector going around for a long time, and the traditional view on the semiconductor space is as long as you're making chips smaller, that's fine. That is all the development in the semiconductor space.

Now, to answer your question, what is AI doing? Because the demand for AI has been so strong in terms of power, efficiency, and in terms of ability as well, that's changed how the semiconductor space works, in that they're not just trying to make it smaller now, but much more efficient.

So there are technical aspects of it in terms of how to mould it, in terms of what moulding material they use, and also in terms of the structure they use for the chips. So a lot of things are happening because of AI demand.

Chris Conway: You touched on some of the breakthroughs there. What's the big thing that's going to happen next year?

Billy Leung: So this is arguable, but there's a big breakthrough in the upstream semiconductor space, which are the machines called the lithography machines.

These are the machines that actually use light to imprint on the chips, to allow it to be much smaller and much more accurate. The point of these machines is to have much finer lights. We've now reached a level where we are using extreme ultraviolet light to imprint these on the chips right now. So this happened about four to five years ago, and what's happened is that it's allowed us to make smaller chips. So I'm sure you've heard of different phones or different computers using five to seven nanometers, and even right now the latest Apple chips are using three-nanometer chips, and this has only been made possible with the EUVL technology.

Chris Conway: Billy, how does that impact the breadth and the depth of the opportunity? And I think more importantly, how do investors stay on top of these advancements?

Billy Leung: The whole semiconductor space is huge. We have companies that make the lithography machines and we also have companies that are just simply making the chips or the foundries. And we also have the chip designers and equipment manufacturers as well.

A joke I always talk about with investors is that there are actually 15 layers or sub-layers of equipment manufacturers. So in terms of the depth, it's huge. But I think the key to note is that in terms of semiconductors, it's all about accuracy and size. So in terms of the whole chain, you need companies everywhere, with niches and strong R&D, because it's actually such a technical development in the technology space.

Chris Conway: Billy, the Global X ETF that you offer in this space is appropriately called SEMI. It has an unconstrained approach, and you're looking to invest across sectors and geographic definitions. What does that mean in practice and how does it help investors?

Billy Leung: Correct. We've talked about how big the semiconductor space is, in terms of the machinery that makes the chips, and the machines that go through testing, processing, and cleaning the chips. This is all very wide. So we have different companies in each of these segments, because of the accuracy required in each of these fields. And not just that, like you said, it actually spans geographically. If you look at our geographical composition in terms of SEMI, there's roughly 60% coming from the US, and there are also companies coming from China, Japan, and South Korea as well. So we have to understand that this semiconductor space is a global space and there is a need to actually go across different segments, industries and geographies as well.

Chris Conway: Billy, thanks so much for sitting down with Livewire.

Billy Leung: Thank you for having me.

Chris Conway: If you enjoyed that episode of The Pitch as much as I did, make sure to give it a like, and don't forget to follow our YouTube channel because adding lots of great content every single week.

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The Global X Artificial Intelligence ETF (ASX: GXAI) invests in global companies involved in AI development, AI-as-a-service, provide AI compute power, or design and manufacture AI hardware.

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