AmInvest Research Reports

Strategy - De-risking from AI theme

AmInvest
Publish date: Wed, 15 Jan 2025, 09:48 AM
AmInvest
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  • Dragged by AI related names (since our last report), the AmResearch model portfolio declined 3.1% YTD.
  • On 13th Jan, the Biden-Harris administration proposed new rules (see here) on the export of AI chips, which we summarise to include: 1. No restriction on chip sales to 18 key allies and partners. 2. Chip orders with collective computation power up to 1.7k advanced GPUs do not require a license and do not count against national chip caps. 3. Entities that meet high security and trust standards and are headquartered in close allies and partners can obtain highly trusted "Universal Verified End User" (UVEU) status. This allows them to place up to 7% of their global AI computational capacity in countries around the world. 4. Entities that meet the same security requirements and are headquartered in any destination that is not a country of concern can apply for "National Verified End User" status, enabling them to purchase computational power equivalent to up to 320k advanced GPUs over the next two years. 5. Non-VEU entities located outside of close allies can still purchase large amounts of computational power, up to the equivalent of 50,000 advanced GPUs per country. 6. Governments that sign arrangements which align those nations' export control, clean energy, and technology security efforts with the United States - can double their chip caps (up to 100,000 of today's advanced GPUs).
  • We view the rules as potentially reducing the addressable market for DCs in Malaysia. The national chip cap of 50k GPUs translates into a power requirement of only 116MW, based on our estimates. For comparison, Tenaga had previously reported maximum DC demand of 4.7GW (actual load utilisation of 248MW), based on 31 projects.
  • Choosing the right customer will become more important, as verified end users will be able to bypass caps and purchase larger amounts of computational capacity. Assuming 100k (based on government signing agreement) and 320k (based on national verified end user status) GPUs, we estimate the power requirement at 232MW and 744MW. Additionally, entities that secure the UVEU status can have up to 7% of its AI computing power in a Tier 2 country.
  • The new rules are subjected to a 120-day comment period before going into effect. This will allow the incoming Trump administration to reopen conversations with companies and law makers.
  • De-risk model portfolio exposure to AI theme. In the meantime, as it will take time for the situation to develop and reach a conclusion, we view it prudent to de-risk our exposure from the AI theme (previously 16% of our portfolio). We cut exposure in our AI names by 5pp to 11%.
  • Sector calls unchanged for now. Until we receive more clarity, we leave our sector calls for Construction and Property unchanged. We are still Underweight on Power, as we believe valuations for Tenaga has priced in upside from RP4 (regulatory period 4).

Source: AmInvest Research - 15 Jan 2025

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