AI boom has a positive impact on Gerlin portfolio companies SUSS MicroTec and technotrans

AI (artificial intelligence) was nominated word of the year 2023. Some call it hype, but what exactly is AI, what is it used for, and which of our Gerlin companies benefit from it?

What is AI and why does it matter?

Over recent decades, AI has evolved from a concept into an everyday reality that influences our lives in various ways. In 2023 we saw an explosion in AI use, partly driven by the launch of ChatGPT, a language model developed by OpenAI. Within two months, ChatGPT reached 100 million monthly active users, making it at the time the fastest-growing consumer product ever. Generative AI offers benefits such as creating creative content, improving productivity, personalising assistance, and supporting research and development. The rise of generative AI tools such as ChatGPT, Google Gemini and DALL-E has sparked enormous global interest in the technology. Demand for AI chips — powerful GPUs and High Bandwidth Memory (HBM) chips — is unprecedented. Additional investment in hardware is essential to scale up generative AI. The exponential growth in data driven by AI development is substantial.

Equity markets worldwide have seen significant moves over the past year as a result of progress in AI. Gerlin Participaties' portfolio has also benefited from this. Two of our portfolio companies, SUSS MicroTec and technotrans, benefit directly from this trend.

SUSS MicroTec: a key player in AI-related technology

SUSS MicroTec's 'Temporary Bonder' machines play a crucial role in the production of advanced HBM memory chips, which are rapidly gaining ground due to the growth in AI applications. HBM chips offer significant advantages over traditional memory chips: higher bandwidth, lower latency, greater energy efficiency, and the ability to be placed closer to the GPU, improving overall performance. These chips consist of eight or more thin memory layers stacked on top of each other. These layers are ground down to the thickness of a human hair and supported by a temporary wafer to prevent damage or warping. This temporary bond is created using SUSS MicroTec's machines, which hold a large market share as the company supplies machines to two of the three leading memory manufacturers, Samsung and Micron.

To meet growing demand, SUSS MicroTec has scaled up its production site in Taiwan. Taiwan was chosen as a location because of its high-quality supply chain and its proximity to a very important customer, TSMC. Production in Taiwan carries risks, such as the possibility of an escalation between Taiwan and China. SUSS MicroTec is aware of this and is considering expanding into another Asian country as well. Significant growth is expected in the HBM market in the coming years, and SUSS MicroTec is well positioned to benefit from this growth thanks to its leading market position.

technotrans and the rise of liquid cooling

technotrans has exposure to AI-related infrastructure through the shift from air cooling to liquid cooling in advanced data centres. The company offers a retrofit solution that allows existing servers in data centres to be converted from air to liquid cooling. It also supplies liquid-cooled solutions for servers in new data centres. Although liquid cooling involves higher upfront costs and more complexity, the long-term benefits — such as lower energy costs and higher efficiency — justify this investment. As a result, the trend is increasingly shifting from air cooling to liquid cooling; for the most advanced data centres, liquid cooling has even become a requirement.

technotrans supplies cooling solutions to a British-American company that integrates complete cooling systems into the data centres of major technology companies such as Amazon, Meta and Microsoft. This makes these tech giants indirect customers of technotrans. Due to the exponential growth in data driven by AI developments, the number of liquid-cooled data centres is expected to grow significantly in the coming years, which should have a positive impact on technotrans's revenue growth.

What the future holds

The share prices of major players such as NVIDIA have risen sharply in recent times. NVIDIA is currently worth more than all German companies with a primary listing in Germany combined. Although it is difficult to predict whether this rally will continue, it is clear that the company is currently generating substantial profits and is likely to continue doing so in the coming years. NVIDIA's revenue is driven primarily by the build-out of AI-related infrastructure.

Although AI development is currently attracting enormous attention, with some even calling it a hype, investment in infrastructure is being driven by tangible successes and proven case studies of AI implementations. The development of AI requires substantial computing power, data storage and network capacity. Building this infrastructure is essential to support growing computational needs. Government initiatives and policy measures in many countries are stimulating the development of AI technologies, pointing to broader recognition of AI's potential. As public interest and education in AI grow, so does demand for AI solutions, driving further investment in related infrastructure. Looking ahead, we expect further growth in regulation and a greater emphasis on compliance. Both socially and legally, AI will reach a critical juncture, where we must carefully consider how and for what purposes it should be applied. AI also carries risks, such as privacy breaches, safety issues, and potential misuse for disinformation. Striking the right balance will be crucial to fully capturing AI's benefits while managing its risks.

AI rightly receives a great deal of attention, but it remains uncertain whether all the high expectations will be met. What is certain is that AI infrastructure is currently being built in a very tangible way. We are pleased to have two portfolio companies benefiting from this trend.