Artificial intelligence (AI) technology is fast accelerating as the demand for just about every computing device to be embedded with AI grows. One of the major catalysts to the boom is the expansion of intellectual property (IP) companies—companies that license software or technology to end-users. That means the benefits will be enjoyed not just by the major chipmakers like Nvidia Corp. (NVDA) and Intel Corp. (INTC), but also by companies that either license technology to chipmakers, like CEVA Inc. (CEVA), or supply software tools to engineers that design chips, like Synopsys Inc. (SNPS) and Cadence Design Systems Inc. (CDNS), according to Barron’s.
As of the close of trading on Thursday, Nvidia is up 121% over the past year, but is down 13% from its recent high set last month. Intel is up 39% over the past year, but down 6% from recent highs. CEVA is up 6% from a year ago, but down 29% from a high reached at the end of last November. Synopsys is up 16% over the last year, but is down 12% from a high set back at the end of January. Cadence is up 20% over the last year, but has fallen 20% since also reaching a high at the end of January. (To read more, see: Fidelity Investments: Tech Stocks Should Be Okay Over Long Haul.)
The Rise of IP Companies
Both Nvidia and Intel, as major chip producers, will benefit from the increasing demand for chips with AI capabilities. However, while these companies designed and built their chips from beginning to end in the past, nowadays, they are turning to IP companies for specific designs, which they then use to build the chips. Following this business model, the bigger chipmakers can focus on the manufacturing without having to figure out the gritty details of designing algorithms.
This business model that has been developing over the past 20 years is opening up opportunities for a lot of smaller tech companies, like CEVA, Synopsys and Cadence. These smaller companies focus on designing blueprints with specific features, like AI algorithms, which they then license to the big chipmakers. (To read more, see: Microsoft to Develop AI Chips for All Its Devices.)
Nvidia Leading the Way
The interesting recent development came last fall when Nvidia released all of its design specifications for its AI circuitry to anyone that wants them. While this allows other software engineers to replicate Nvidia’s AI algorithm blueprints, the advantage for Nvidia is that the move could make Nvidia’s designs the AI standard. Rather, than potentially having to compete with possible other designs, Nvidia may be directing the path of future developments in the technology, and consequently securing a future market for its chips.
On that note, Hans Mosesmann of Rosenblatt Securities believes that Nvidia is blowing away competitors as its graphic processing units (GPUs), which are widely used for AI tasks, are displacing use of traditional central processing units (CPUs). He believes that the AI chip market is likely to consolidate in coming years and doesn’t “see anyone really challenging Nvidia,” according to a separate article by Barron’s.