While players like Nvidia (NVDA) and Broadcom (AVGO) are at the forefront of investors’ minds, smaller specialized players are grabbing a slice of the AI spending behind the scenes.
In a recent report, Bank of America analyst Vivek Arya named a handful of small- to mid-cap companies as the unsung heroes of the semiconductor surge.
“We mentioned a few companies on the smid-cap side, Credo, MKS, Advanced Energy, MACOM, and Teradyne,” Arya told reporters on a Dec. 19 call.
While these companies lack the massive margins of Nvidia, Arya suggests they are currently benefitting from being the primary providers of essential technologies.
The scale of the unsung opportunity is staggering. BofA predicts the total addressable market for AI data center systems will exceed $1.2 trillion by 2030, fueled by a 38% compound annual growth rate. Within that, AI accelerators will grab around $900 billion, but that leaves a massive $300 billion slice — one that depends on secondary technologies like networking, cables, and power systems.
Arya breaks down how the pie is divided. For every $100 spent on AI hardware, $15 to $20 goes into networking. A third flows directly into interconnects — the wires and optical components that let GPUs talk to each other. As AI clusters expand, these bits and bolts of the trillion-dollar build-out are seeing a direct benefit.
Arya highlights Credo (CRDO) for its leadership in active electrical cables. As data centers prioritize “performance per watt,” Credo’s niche technology is critical. “They want to make sure that all these GPUs talk to each other, very effectively,” he said.
He also pointed to Astera Labs (ALAB) and its robust high-speed connectivity efforts via PCIe 6.0, the standard for moving data between a computer’s motherboard and its hardware.
“They were the ones who invested in specific technologies … nobody cared about these categories,” he said. “So now, they are benefitting from being the only people standing in those specific niche technologies.”
Other key players, such as MKS Instruments (MKSI) and Advanced Energy (AEIS), provide the precision power and vacuum systems needed to actually build chips. If Nvidia is the architect, these companies provide the machinery and high-voltage power to keep the site running.
Meanwhile, MACOM (MTSI) provides high-speed analog and optical components that let these “brains” interact, while Teradyne (TER) serves as a final checkpoint. The company’s automated testing equipment ensures these expensive components actually work before they are shipped.