This innovator has an answer to a big AI problem

AI developers need power-hungry computer chips. Companies developing more energy-efficient chips are poised for strong growth. MAXIME LE FLOCH explains

• Climate concerns from AI energy use
• New tech can improve efficiency
• Find out about Regnan Global Equity Impact Solutions Fund

SELLING shovels in a gold rush has become a bit of an investing cliche, but it’s an apt description of German-listed Aixtron SE, which makes equipment for the semiconductor industry.

The rapid growth of artificial intelligence technology is driving demand for semiconductors, the fundamental components of all computing devices.

Fast-growing AI chip-maker Nvidia is a prime example.

However, soaring demand for computing power is also causing the problem of high energy consumption and growing carbon emissions.

Aixtron is at the forefront of trying to solve this problem.

“Artificial intelligence doesn’t exist in the ether — it requires computing power from a vast infrastructure of data centres,” says Maxime Le Floch, an analyst with the Regnan Global Equity Impact Solutions fund.

“So there has been a boom in the demand for data centres, and one of the derivatives of that growth is the need for more semiconductors.

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“One of the technologies that can help solve the issue of high energy consumption and carbon emissions in the semiconductor industry is the use of compound semiconductors like gallium nitride, where Aixtron is a market leader.

“Gallium nitride chips have a much better energy efficiency than traditional silicon.

“It’s 10 times the voltage of traditional silicon — that’s a huge improvement in energy efficiency.”

This improvement in energy efficiency can reduce the energy consumption of a data centre by 20 per cent, leading to a 10 per cent reduction in data centre operating expenditure, says Le Floch.

These are important advances.

A single prompt in chatGPT consumes hundreds of times more energy than a single google search.

Training the underlying AI model for ChatPGT3 generated 550 tonnes of carbon emissions.

Aixtron is a supplier of “deposition” machines which “deposit” thin layers of high-tech material on computer chips during their manufacture process.

Traditionally made of pure silicon, semiconductors are now increasingly made with two or more elements to improve performance and efficiency.

Aixtron has a 90 per cent market share of the systems that make these so-called compound semiconductors.

“It makes a lot of economic sense for the industry to move to compound semiconductors and Aixtron is dominant,” says Le Floch.

Use in electric vehicles

The firm is also a leader in silicon carbide used in power electronics that manage electrical energy in electric vehicles.

“There’s a move in electric vehicles to silicon carbide inverters that can withstand much higher voltage and temperature than traditional silicon and Aixtron is the leader in this,” says Le Floch.

“Hyundai reported they were able to improve the range of their EVs by 5 per cent just because of the efficiency gains of silicon carbide inverters.

“That’s a big improvement that can either be used to increase range or reduce the size of the battery, which means a lower cost vehicle that uses fewer materials and has better energy efficiency.”

Market drivers

Le Floch says Aixtron is benefiting from the confluence of multiple adoption curves — the rapid growth of AI, the search for more energy-efficient semiconductors, the adoption of EVs and the car industry’s migration to silicon carbide.

Gallium nitride semiconductor demand is growing at 50 per cent per annum, while silicon carbide growth is 30 per cent, he says.

Powerful structural trends like AI and EVs create their own environmental challenges and require changes in the value chain to solve problems like energy efficiency, says Le Floch.

“Companies that can provide compelling solutions for these kinds of problems typically experience very strong growth and long term, compounding earnings.”

About Maxime Le Floch

Maxime is an analyst with Regnan’s impact investment team. He focuses on Regnan Global Equity Impact Solutions Fund. Maxime has more than 10 years of experience in sustainable investment. Before joining Regnan he was an investment analyst with Hermes where he helped launch and manage the Hermes Impact Opportunities Equity Fund.