AI market spreads from chips to MLCC and substrates: Asian supply chain welcomes revaluation of value, Citi and Bank of America call for price increase tide.

The AI market sweeping across Asia is exploding and spreading deep into the supply chain. Notably, for most of the past year, the spotlight has been on chip manufacturers such as TSMC, Samsung Electronics, and SK Hynix - all key suppliers to Nvidia. The global chip shortage has pushed the stock prices of these companies to record highs. Now, investors are further scrutinizing the AI supply ecosystem, as even the most powerful processors cannot work without the lower-profile components that support them. This growing awareness, combined with increasing demand and prices, is helping a new group of companies rebound. These companies are mainly divided into three categories: multi-layer ceramic capacitors (MLCCs) for regulating power within electronic systems; advanced chip substrates responsible for connecting semiconductors to the rest of the hardware; and thermocompression bonding (TCB), a precision process that fuses all parts together. Kieran Poon, director of Asian stock investments at Allianz Investment, said, "Imagine a printed circuit board as a dining table, with the dishes on the table called substrates and the food in the dishes called chips." AI frenzy extends further into chip supply chain In this group, substrate manufacturers Unimicron Technology Corp. and Ibiden Co. have seen their stock prices soar by about 770% and 530% respectively over the past 12 months. Samsung Electro-Mechanics and Murata Manufacturing, MLCC manufacturers, have also reached all-time highs this month. Hanmi Semiconductor, a leader in the TCB field, has also hit historic highs. Most of this supply chain is concentrated in Asia, mainly in South Korea, Taiwan, Japan, and China. Driving this trend is the strength of AI infrastructure development. AI servers consume much more electricity than traditional servers, leading to a chain reaction: higher power requirements mean more components are needed to manage and stabilize them. Young Jae Lee, a senior investment manager at Pictet Asset Management, said that an AI server may use 10 to 15 times more MLCCs than a standard server, about 30 times more than a smartphone. The surge in demand is causing supply shortages and pushing up the prices of these components. Samsung Electro-Mechanics stated this week that it is considering raising MLCC product prices by up to 10%. Analyst Takayuki Naito from Citigroup also emphasizes that market expectations for price increases for components like MLCCs, aluminum electrolytic capacitors, and packaging substrates are growing. Naito believes this could support Japanese manufacturers like Murata Manufacturing and Taiyo Yuden, who may adopt more aggressive pricing strategies. JPMorgan Chase analysts last week raised their target prices for Murata and Taiyo Yuden, suggesting that supply-demand dynamics may remain tight for a long time. Simon Woo, head of Korea research at BofA Global Research, said that MLCC and substrate production lines are running at more than 90% capacity. He noted, "If AI demand increases slightly from current levels, traditional usage capacity will shrink significantly." The ripple effect is further spreading in the ecosystem. Optical component manufacturers are also caught up in this wave of growth as investors focus more on the role of these technologies in data centers, especially with increasing AI usage driving demand for bandwidth. Poon from Allianz Investment said the supply of capacitors, substrates, and TCBs is still concentrated, and the customer base serviced by these companies is rapidly expanding. This means that the bargaining power "definitely remains in the hands of the suppliers."